Los Angeles – March 31, 2018 – Spreads for CML transactions have experienced their own version of March Madness. A growing segment of the life company market has been chasing low to moderate leveraged transactions (60% leverage or less) and cutting their spreads in the process. Given the current treasury yield environment, spreads have dipped to the low 100’s for low leverage transactions. Even some modestly leveraged loans rated CM 2 for Risk Based Capital (RBC) are getting priced in this range by a number of life companies. A smaller segment of the life company market maintains a higher yield target and are willing to increase leverage, offer a longer amortization schedule, provide more flexible prepayment structures, and/or lend in secondary and tertiary markets. Spreads for these transactions range from the 140-190 basis points and are often CM2 rated loans. Agency spreads have widened for the second consecutive month, gapping 6-12 basis points over the past 30 days. This should provide life company lenders an opportunity to compete more effectively in the multifamily space. Most life companies have a positive outlook for the multifamily asset class and have CML portfolios that are underweighted in this product type.
Los Angeles – February 28, 2018 – In its CRE Debt Market Update for 4Q 2017, Situs RERC reports that the 4Q 2017 lending environment was healthy and paints a bright picture for lending in 2018. With respect to private debt, banks and insurers are reporting that the CRE market is becoming increasingly crowded, and also noted an evident loosening of underwriting standards. “Strong property fundamentals are leading to an increase in borrowing and lending across most property types and capital sources, despite how far along we are in the real estate cycle,” says Jennifer Rasmussen, PhD, Assistant Vice President of Situs RERC. “Investors are increasingly moving into the value-add space and branching into the secondary and tertiary markets in the quest for yield.” Based on information from Commercial Mortgage Alert (CMA) and Mortgage Bankers Association (MBA), Situs RERC provides the following summary of the debt markets:
Los Angeles – January 31, 2018 – According to CBRE Research, in Q4 2017 the lending market experienced favorable pricing as origination volume eased up slightly. Despite an increase in short-term interest rates in December, the enactment of comprehensive tax reform contributed to strong investor sentiment. This environment has been favorable to CMBS conduit and priviate commercial mortgage pricing. The CBRE lending Momentum Index fell by 1.2% in Q4 2017. As of December, the index is down 15.9% on a year-over-year basis. Loan underwriting turned slighly more aggressive in Q4 with the average commercial LTV up to 60.9% and the average multifamily LTV up to 71.7%. The average constant and debt yield was 5.72% and 9.09%, respectively. The percentage of loans carrying intrest-only terms rose to 66% in Q4 from 57.8% in Q3.
Los Angeles – December 31, 2017 – According to Situs RERC, investment conditions improved for all property sectors compared to the previous quarter except for hotel. The industrial sector provided the strongest investment conditions as online retailers continued to demand more space for warehouses and implemented last-mile delivery strategies. Despite the negative news coverage about the retail sector, investors were more positive across all retail subtypes compared to last quarter. Investors may be more optimistic about investment conditions for retail because of the better-than-expected holiday sales recorded for brick-and-mortar stores.
Commercial/Multifamily Market Summary:
The Mortgage Bankers Association (MBA) released their Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations for the third quarter of 2017, showing a 21 percent increase in commercial and multifamily mortgage loan originations compared to the same period last year, and an 8 percent increase over 2Q17. As was the case during the first and second quarters, commercial/multifamily mortgage bankers’ originations increased despite a slowdown in the volume of sales transactions. Most property types and capital sources saw stronger lending activity than a year earlier, supported by solid property fundamentals and continued property value appreciation.