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Tuesday, 15 November 2016

Issuers Plow Ahead with CMBS Deals

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Commercial Real Estate Direct Staff Report

A hefty batch of CMBS has been pushed into the market that would push the year's issuance to $62 billion - a level that until just weeks ago few would have expected to be reached.

And there are indications that perhaps up to another $8 billion of CMBS could be issued before the end of the year, which would bring 2016's volume to $70 billion.

While that pales in comparison to the $95.1 billion issued last year, it would represent a dramatic turnaround from the first half of this year, when only $27.3 billion of bonds were issued - a nearly 50 percent decline from 2015. Since the end of June, $34.7 billion of bonds have been issued. During last year's second half, $43.2 billion was issued.

Issuance during the first half of the year was stymied by market volatility. As bond spreads widened, it became difficult for lenders to profitably price their loans. So many simply stopped writing loans, or sharply slowed their activity.

But with market conditions improving early in the third quarter, lenders restarted their origination operations, with vigor. Origination volumes jumped by 7 percent during the third quarter, according to the Mortgage Bankers Association, with conduit lenders increasing their activity by a whopping 96 percent. Of course, that was from a period during which conduit lending was grounded.

Benchmark bonds most recently have consistently cleared at spreads of between 105 and 120 basis points more than swaps, depending on the issuer.

The batch that's in the market includes CD, 2016-CD2, a $973.4 million deal backed by loans originated by Deutsche Bank and Citigroup that is designed to adhere to pending risk-retention rules. The two issuers are keeping a 5 percent, or $48.8 million, vertical piece of the deal. Only two other conduit deals have been structured to be compliant with the pending rules and those were issued by the team of Morgan Stanley, BofA Merrill Lynch and Wells Fargo Securities. Those two deals, under the BNK brand, were well received by investors and garnered extremely tight spreads. The most recent, Morgan Stanley Capital I Inc., 2016-BNK2, which priced 11 days ago, saw its benchmark class price at a spread of 107 bps more than swaps, which would compare with spreads of 111 to 120 bps for other conduits that priced during that time.

The 2016-CD2 deal's collateral was, as would be expected, underwritten relatively conservatively. The 30 loans in the deal's collateral pool have a weighted average debt-service coverage ratio of 2.21x and a loan-to-value ratio of 54.1 percent, the second lowest of any conduit this year.

Meanwhile, the collateral pool is chock full of loans on trophy properties, mostly in New York, such as 10 Hudson Yards, a 1.8 million-square-foot office building that was recently constructed and is 93.2 percent leased by tenants that include Coach Inc., which houses its headquarters in it; 667 Madison Ave., a 250,731-sf office building that recently was appraised at a value of $740 million, and the retail space at 229 West 43rd St. near Times Square that's fully occupied by tenants whose leases run through at least 2029.

Other deals in the market include GS Mortgage Securities Corp. II, 2016-GS4, which is backed by $1 billion of loans from Goldman Sachs. Its benchmark class was being shopped yesterday at a spread of 105-107 bps more than swaps, representing a tightening of some 13 bps from CSAIL Commercial Mortgage Trust, 2016-C7, which priced last Thursday and might have been dinged because its credit metrics weren't as conservative as those in other deals that are coming up the pike. Its DSCR, for instance, is 1.72x, compared with the GS4 deal's 3.04x, the highest all year. And its leverage level was 63.6 percent. The GS4 deal's is 50.9 percent - again, the lowest of the year.

Other conduits in the market include Wells Fargo Commercial Mortgage Trust, 2016-LC25, which is backed by loans contributed by Wells Fargo, Rialto Mortgage Finance, Ladder Capital and National Cooperative Bank; and Morgan Stanley Capital I Inc., 2016-UBS12, with 824.4 million of loans that were contributed by UBS, Natixis, Morgan Stanley and Bank of America.

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


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Additional Info

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  • Subject: CMBS - non-deal specific (CMBS-G), Commercial MBS (CMBS)
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Data Digest







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




cppichart FP



CMBS 2.0 Spreads


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





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