Los Angeles – September 30, 2018 – The level of commercial/multifamily mortgage debt outstanding increased by $52.3 billion in the second quarter of 2018 as all four major investor groups increased their holdings. That is a 1.6 percent increase over the first quarter of 2018, according to MBA’s latest Commercial/Multifamily Mortgage Debt Outstanding report. Total commercial/multifamily debt outstanding rose to $3.27 trillion at the end of the second quarter. Multifamily mortgage debt outstanding rose to $1.3 trillion, an increase of $20 billion from the first quarter of 2018. The balance of mortgage debt on commercial and multifamily properties grew faster during the first half of 2018 than during any other first half since 2007. The four major investor groups all increased their holdings. Agency and GSE Portfolios saw the largest increase (2.4%), followed by life insurance companies (2.2%), banks and thrifts (1.9%), and CMBS, CS and other ABS issues (1.3%). Strong property fundamentals and values, coupled with still-low mortgage rates and strong loan performance, are all supporting the market.
Of note, there was an approximate 20 basis point increase this month in the 5, 7 and 10 year Treasury, which is significant. The change from one year ago is approximately 75 basis points. The recent interest rate movement may exert downward pressure on spreads in the short term as lenders compete aggressively for business to end the year.
Conduit issuance was light in September with only 3 deals pricing for a total of $3.24b, bringing the YTD conduit total to $28.57b across 31 deals. Two of the deals priced relatively close to one another, while the third deal priced wider based on perceived weaker sponsorship. AAA LCF priced from S+78-85, with two deals at 78 and one at 85. The AA- priced in a range of S+115-130, with the A- ranging from S+145-185. The SASB space was also quiet with only 4 deals pricing, all of which were floating rate and totaled only $1.288b. Additionally, 2 CRE CLOs priced for a total of $641mm.The real star of the show this month was the secondary market, which was particularly active this month as bonds traded both in comp and behind the scenes. We saw everything from AAA tranches down to below investment grade bonds trade, with all tranches ending the month tighter. AAA LCF bonds started to trade a little heavy in the last two days of the month after heavy selling leading into quarter end. Even with the month end widening though, they still managed to tighten around 5 bps on the month. AA- bonds ended the month tighter by 5-10bps, with A- bonds closer to 10-15bps tighter. BBB- bonds outperformed again this month, with spreads 20-30 basis points tighter.
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