Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Wednesday, 27 November 2019

Libor Floors Show Value as Benchmark Rate Continues Decline

Libor floors lately have proven to be godsends for alternative lenders, providing them with downside protection as the benchmark one-month Libor rate has declined steadily since the end of last year. The rate, which had peaked at 2.52 percent at the end of last year, has steadily dropped and this week was 1.72 percent.

Commercial Real Estate Direct Staff Report

Libor floors lately have proven to be godsends for alternative lenders, providing them with downside protection as the benchmark one-month Libor rate has declined steadily since the end of last year.

Benefit Street Partners Realty Trust Inc., for instance, noted that a 25 basis point drop in one-month Libor, or London Interbank Offered Rate, during the quarter through the end of September would have translated to a 1.37 percent increase in the interest income it would earn. On the flip side, a 50-bps increase in Libor would have resulted in only a 0.68 percent increase in interest income.

And Starwood Property Trust, which placed Libor floors on all $1.2 billion of originations it completed during the latest quarter, noted that a 1 percent decrease in the benchmark rate would result in a 5 cents/share increase in its net interest income. And if rates were to increase by 1 percent, its earnings would increase by only 3 cents/share. A total of 84 percent of its $7.6 billion mortgage portfolio has floors.

The company said 25 percent of its Libor floors are "in the money," meaning they're higher than the actual Libor rate.

One-month Libor this week was 1.72 percent. It had bottomed out at about 15 basis points in the middle of 2014 before climbing steadily to 2.52 percent at the end of last year. It's declined consistently since then.

Lenders typically use Libor - at least for now, as the rate will be phased out by the end of 2021 - as a benchmark rate for...





weekly-call-to-action

“The Weekly”

“The Weekly” is Commercial Real Estate Direct’s PDF newsletter, sent to subscribers every Friday morning. With over 100 news stories published on Commercial Real Estate Direct each week, “The Weekly” features the top stories in commercial real estate that industry participants need to know first. “The Weekly” also contains:

  • Breaking mortgage, CMBS, and REIT news

  • Quarterly league tables with rankings of B-piece buyers, book runners, and lenders

  • Industry moves and changes in “The Insider“

Data Digest

 

CMBS DELINQUENCY VOLUME

dqdataFP1

 

CMBS SPECIAL SERVICING VOLUME

sschartfp

Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

cppichart FP

 

 

CMBS 2.0 Spreads

AAAspreads

Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

REITCafe

  • Challenging Retail Environment Weights on REITs
    Mixed economic news is weighing on retail markets, pushing REIT performance down in 2015. This week, the National Retail Federation announced that back-to-school spending is expected to be down 9.3% in 2015. This news came on the heels of a report from the Commerce Department stating that retail sales declined 0.3%...
     
  • US REITs Feeling Effects from Turmoil in Greece and China
    International economic forces have taken center stage this week, affecting both US stock markets and REITs. The crash in the Chinese stock market and ongoing concerns about the future of Greece in the eurozone drove markets down during the first half of the week. REITs fared better than the overall market...

  • What Does Increased Construction Mean for Apartment REITs?
    REITs so far this year have raised $17.1 billion of capital through the sale of unsecured notes, bringing the total raised over the past two and a half years to just more than $75 billion. That’s more than they raised during the previous five years. The massive volume shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark...
shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark against which most REIT’s price their bonds
warehouse-backstage