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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