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Monday, 03 April 2017

Private-Label CMBS Issuance Plunges by Nearly a Third Again

Domestic, private-label CMBS issuance so far this year is running nearly 30 percent behind last year's tepid volume. Blame the uncertainties surrounding the risk-retention rules that kicked in on Christmas Eve. January saw only two deals price. Volume for the quarter was $12.6 billion, compared with $17.2 billion last year, which itself was a 32 percent drop from the year before.

Commercial Real Estate Direct Staff Report

Domestic, private-label CMBS issuance this year so far is running nearly 30 percent behind last year's tepid volume.

But that shouldn't be a surprise. The expectation coming into the year was that the first quarter would see little in terms of issuance as issuers and investors got their arms around the risk-retention rules that went into effect on Christmas Eve.

Surprisingly, two transactions totaling $1.7 billion price in January, albeit late in the month. And February saw only five deals, totaling $3.8 billion price. Issuance picked up last month, when eight deals with a balance of $6.9 billion priced. The total tally for the quarter was 16 deals with a balance of $12.6 billion. That compares with 23 deals with a balance of $17.8 billion a year ago, which itself was 32 percent below the volume posted in the first quarter of 2015.

Volumes fell across the board, with conduit issuance falling by nearly a quarter and single-borrower activity plunging by half.

Domestic, Private-Label CMBS Issuance

1Q2017

1Q2016

Deal Type

#Deals

Vol $mln

#Deals

Vol $mln

% Change

Conduit

9

8,656.48

13

11,409.40

(24.1)

Single-borrower

5

2,928.60

8

5,801.50

(49.5)

Other

2

967.27

2

1,154.80

(16.2)

TOTAL

16

12,552.35

21

17,210.90

(27.1)

While issuance is likely to pick up from the first quarter's weak pace, it's still too early to tell whether activity for the year will match last year's anemic $68.1 billion of total issuance. That was the lowest annual volume since 2012.

Issuance in 2016 was hammered by market volatility early in the year. As the market stabilized, issuance picked up sharply. Risk-retention rules were this year's bogey-man and effectively stifled issuance during the early part of January.

Those rules require an issuer to retain a 5 percent piece of every deal. It could do that by retaining 5 percent of the par value of every bond class offered, or it could sell a 5 percent piece, by market value, of the deal's most subordinate bonds. It also could adopt a hybrid strategy, where it sells some subordinate bonds as the risk-retention piece, and makes up the remainder through a vertical retention piece that it keeps.

So far, the vertical risk-retention strategy has been favored, with four conduits having been structured with it. Three others were structured with a hybrid, or L strategy. And two the horizontal.

The buzz has been that the hybrid strategy could very well become the favored route for conduit deals. The B-piece buyer doesn't have to buy very far up the capital stack, reducing its impact on overall pricing, while issuers still keep a piece of the deal. And because the piece they end up keeping is less than 5 percent, they don't have to set aside as much capital as they otherwise would have to under a vertical strategy.

Top Bookrunners
Domestic, Private-Label CMBS

1Q2017

1Q2016

Rank

Investment Bank

#Deals

Bal $mln

Mkt Shr%

#Deals

Bal $mln

Mkt Shr%

1

Goldman Sachs

2.9

2,311.94

18.97

3.4

2,830.87

16.5

2

Citi

2.1

2,194.92

18.01

2.6

2,253.23

13.1

3

Deutsche Bank

1.4

1,589.46

13.04

3.9

3,142.64

17.6

4

Wells Fargo Securities

2.1

1,531.65

12.57

3.3

2,776.99

15.6

5

JPMorgan Securities

1.4

1,483.23

12.17

1.7

1,251.17

7.27

6

Barclays Capital

1.2

998.70

8.19

0.5

507.89

2.95

7

Morgan Stanley

1.5

887.33

7.07

1.9

1,039.68

5.83

8

BofA Merrill Lynch

0.6

611.83

5.02

1.6

883.62

5.13

9

Credit Suisse

2.0

427.10

3.50

2.0

1,406.42

7.88

10

UBS

0.6

425.02

3.49

0.7

493.96

2.87

11

Societe Generale

0.1

91.17

0.75

0.4

278.96

1.62

12

Cantor Fitzgerald

0

0

0

1.1

815.47

4.57

 

TOTAL

15

12,552.35

 

23

17,846.90

 

Source: Commercial Real Estate Direct

Meanwhile, Goldman Sachs took top honors among bookrunners. It received credit for 2.9 deals totaling $2.3 billion, for a 19 percent share of the quarter's market volume. Citi was just behind it, with 2.1 deals totaling $2.2 billion. Deutsche Bank, which had been the most-active bookrunner in last year's first quarter, slipped to third place, with 1.4 deals totaling $1.6 billion. Its activity was hampered by the absence of deals involving collateral loans written by Cantor Commercial Real Estate, which drove its volume last year, and the quarter's slim single-borrower deal volume. Last year, it absolutely dominated single-borrower deals.

A ranking that gives full credit to every lead and co-manager on a deal had Drexel Hamilton once again on top, with a 52 percent share of the market. Academy Securities was just behind it, with a 42.4 percent share of the market. Both institutions are staffed largely by U.S. military veterans. Drexel Hamilton was founded by Chance Mims, a U.S. Naval Academy alumnus who served on the USS John Paul Jones during Operation Enduring Freedom, while Academy's president is Phil McConkey, former wide receiver for the New York Giants who also graduated from the Naval Academy and served as a naval aviator.

Comments? E-mail Orest Mandzy, or call him at (267) 247-0112, Ext. 211.


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