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Commercial Real Estate Monthly Recap – Oct. 2018

Los Angeles – October 31, 2018 – Notable monthly movements in the market include an approximate .10%-.15% widening of spreads for agency loans (~.20% YOY) as well as “A” and “BBB” rated grade corporate bonds (~.22% YOY). The movement in agency spreads is likely due to heightened levels of the supply of bonds in the marketplace, both in Freddie K’s and DUS, while buyers are continuing to be more selective. Benchmark rates continued to widen with 1-month LIBOR up .07% (+.99% YOY), 10-year treausry up .08% (+.68% YOY), 30-year treasury up .16% (+.33% YOY). Upward movement in benchmark rates has been more pronounced over the last 12 months at the shorter end of the curve.

As reported in a recent Crittendon Rearch, Inc. article, “Count on life company lenders to dip their toes into new programs, property types and markets in 2019. Next year will be another competitive one with sporadic deal flow and aggressive competition for any deals with cash-flow potential. There will also be tougher competition from non-institutional lenders. Many life companies will provide different buckets of capital to offer a one-stop-shop in an effort to grab yield. More life company lenders are coming out with bridge-lite programs. They will look at light repositioning or replacing tenants to bring a property up to stabilized occupancy. Anticipate more life companies to pick up third-party production accounts. This allows them either to widen their product offerings or sell participations in their mortgages in order to increase their traditional loan production. Also, expect more construction-to-perm loans and there are even whispers of some life companies starting up CMBS lending arms.”

Conduit issuance was light again in October, with only 3 deals pricing for $2.9b, bringing the YTD conduit total to $31.47b across 34 deals. The 3 deals priced relatively close to one another even though their top line metrics varied somewhat which would indicate varying credit quality. The AAA LCF priced in a range of S+84-87, with the AA- spread ranging from S+120-125 and the A- spread ranging from S+170-180. Secondary spreads finally reversed course after months of tightening and ended October at the wides of the month, as macro pressures and heavier dealer inventories took their toll. On the month, AAA LCF spreads widened 10-12bps, with AA- and A- bond both out around 20bps. BBB- underperformed this month, with spreads wider by 20-30bps. Away from the conduit space, 5 SASB deals, all floating rate, priced for a total of $3.96b and two CRE CLO’s priced totaling $1b. New issue is expected to pick up in November, as dealers look to get deals out the door before the holidays get into full swing.

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Alice EricsonCommercial Real Estate Monthly Recap – Oct. 2018
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VentureClash Announces Winners of 2018 $5 Million Global Venture Challenge

Nassau Re was a proud sponsor of VentureClash, $5 million global investment challenge for early-stage companies in digital health, financial technology, insurance technology and the Internet of Things. The final pitch event was held on Thursday, October 18, at the Yale School of Management in New Haven.

In all, nine companies from six different countries participated in the final pitch event. VentureClash judges awarded six companies with investments, mentoring and customer introductions to help them grow and succeed. The winning companies are required to establish a presence in Connecticut.

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Alice EricsonVentureClash Announces Winners of 2018 $5 Million Global Venture Challenge
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Commercial Real Estate Monthly Recap – Sept. 2018

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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Alice EricsonCommercial Real Estate Monthly Recap – Sept. 2018
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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
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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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