CorAmerica

Commercial Real Estate Monthly Recap – Aug. 2018

Los Angeles – August 31, 2018 – The Mortgage Bankers Association (MBA) released their Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations for the second quarter of 2018, showing commercial and multifamily mortgage loan originations were four percent higher than during the same period last year and 32 percent higher than the first quarter of 2018. Borrowing and lending continues to track with last year’s level. Investor demand for multifamily properties and hotels are helping push originations higher, even as loan demand for retail properties is down. New loan demand continues to be supported by still-low long-term interest rates, growing property incomes, and rising values. A rise in originations for hotel and multifamily properties led the overall increase in commercial/multifamily lending volumes when compared to the second quarter of 2017. The second quarter saw a 22 percent year-over-year increase in the dollar volume of loans for hotel properties, a 17 percent increase for multifamily properties, a one percent increase for retail properties, a four percent decrease for office properties, a 10 percent decrease in industrial property loans, and a 16 percent decrease in health care property loans. Among investor types, the dollar volume of loans originated for the Government Sponsored Enterprises (GSEs – Fannie Mae and Freddie Mac) increased by 18 percent year-over-year. There was a six percent year-over-year increase for life insurance company loans, a one percent decrease in commercial bank portfolio loans, and an eight percent decrease in the dollar volume of Commercial Mortgage Backed Securities (CMBS) loans. Second quarter 2018 originations for hotel properties increased 89 percent compared to the first quarter 2018. There was an 87 percent increase in originations for retail properties, a 36 percent increase for office properties, a 25 percent increase for multifamily properties, a 9 percent increase for industrial properties, and a 9 percent decrease for health care properties from the first quarter 2018.

Conduit issuance was generally light in August with 4 deals pricing for a total of $2.88b, bringing the YTD conduit total to $25.33b across 28 deals. While last month’s deals were all issued off relatively high quality shelves causing the range of prints across the stack to be relatively narrow, this month’s deal prints showed a much wider dispersion. The AAA LCF priced in a range of S+86-91, with the AA- ranging from S+125-140 and the A- ranging from S+165-200 (versus 150-160 last month). The non-conduit space was also relatively quiet with only 5 SASB deals pricing for a total of $1.7B. Of this issuance, $1.34b was floating rate (across 4 deals), while the remaining $365mm (1 deal) was fixed. One CRE CLO also priced for $285mm. In the secondary market, AAA LCF bonds tightened by 2-4bps, with the rest of the stack continuing to benefit from the lack of supply, particularly in the last 3 weeks of the month, since all four conduits priced by August 10th. Secondary mezz continues to trade through primary for most deals, with AA- bonds tighter by 3-5bps and A- bonds tighter by 5-10bps. While overall trading volume was lower in August, the BBB- space was relatively active as faster money and total return accounts looked to take profits. Even with the elevated selling, BBB- bonds outperformed again in August, with bonds tightening anywhere from 15-25bps.

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Alice EricsonCommercial Real Estate Monthly Recap – Aug. 2018
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Commercial Real Estate Monthly Recap – July 2018

Los Angeles – July 31, 2018 – According to CBRE’s Q2 2018 U.S. Lending Figures reports, although lower loan maturity volumes have resulted in less originations this year, the commercial mortgage market remains in good shape overall. With an additional short-term policy rate increase by the Federal Reserve in June, the yield curve has continued to flatten. As of mid-July, the spread between 10-year and two-year Treasury bonds was only 25 bps—the tightest level since before the 2008 recession, when the yield curve inverted. Q2 lending volume, as measured by the CBRE Lending Momentum Index, was even with Q1 levels. Compared to a year ago, however, the index is down 10.6%. Agency multifamily lending is quite active. Year-to-date through May, combined Fannie Mae and Freddie Mac multifamily loan purchase volume totaled $43 billion, not far off the record-setting pace of $44.6 billion for the same period in 2017. Overall debt service coverage and LTV ratios in Q2 were consistent with the prior quarter. The percentage of loans carrying interest-only terms was 61%, down 5 percentage points from Q1. According to CBRE, there has been no substantial deterioration in loan underwriting measures over the past several quarters.

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Alice EricsonCommercial Real Estate Monthly Recap – July 2018
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Commercial Real Estate Monthly Recap – June 2018

Los Angeles – June 30, 2018 – Life insurance companies and pension funds, as part of their overall investment portfolios, hold $475 billion in commercial and multifamily mortgage debt, accounting for 15 percent of the total outstanding. In 2017, life companies lent $80 billion in commercial and multifamily mortgages – a new record and four percent above 2016 levels – growing their portfolios by $40 billion or 9 percent. The long-term nature of commercial and multifamily loans matches well with the long-term nature of many of the liabilities off these companies. And like other capital sources, commercial and multifamily mortgages have performed extremely well for life companies. For most of the past decade-and-a-half, 60+ day delinquency rates have been below 10 basis points. At the end of 2017, just .03 percent of the balance of loans held by life companies were delinquent – 17 out of 33,236 loans.

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Alice EricsonCommercial Real Estate Monthly Recap – June 2018
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Commercial Real Estate Monthly Recap – May 2018

Los Angeles – May 31, 2018 -Interest rates for commercial mortgage debt have increased over the past two years given the 1.00% rise in the 10-year treasury over that time period. But, that’s not the whole story. The spread over treasuries for new loans has compressed, the average loan constant has decreased, and the debt level per dollar of NOI has also increased (lower debt yields). Assuming a 65% LTV 10-year loan, increases in overall interest rates range from .20%-.60% depending upon the capital source. CorAmerica’s matrix spread has declined by .40% with a net increase in overall rate of .60%. Agency spreads for the same term and LTV have declined .54% with a net change in overall rate of .44%.

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Alice EricsonCommercial Real Estate Monthly Recap – May 2018
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Commercial Real Estate Monthly Recap – April 2018

Los Angeles – April 30, 2018 – According to the CBRE Q1 2018 U.S. Lending Report, lending markets remain strong, despite recent market volatility. Real estate capital markets remained in good shape, with healthy loan production volumes and favorable credit spreads for borrowers. As investors anticipate additional short-term rate increases by the Federal Reserve this year, the yield curve has begun to flatten. By mid-April, the spread between ten-year and two-year Treasury bonds was at the tightest level since before the 2008 recession. Through February, combined Fannie Mae and Freddie Mac multifamily loan purchase volume of $15.6 billion was below the record-setting pace of $20.6 billion at the same time last year. For all loans tracked by CBRE the percentage of loans carrying interest-only terms remained at 66% in Q1, and there has been no substantial deterioration in underwriting measure over the past few quarters. The average LTV fell slightly in Q1 to 59.8% for commercial properties and 68.3% for multifamily. The average debt yield and constant across all property types was 9.36% and 5.89%, respectively. The full report is available upon request.

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Alice EricsonCommercial Real Estate Monthly Recap – April 2018
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