$8.9Bln of U.S. CMBS Prices During 3Q; Sharp Slowdown Seen

Posted on September 30, 2011

Seven private-label CMBS transactions with a balance of $8.9 billion priced during the third quarter, bringing full-year issuance to $24.8 billion.

The issuance so far this year is 125 percent more than the $11 billion of deals that priced last year, when the CMBS market was in the nascent stages of recovery. But the expectation is that the fourth quarter will fall far short of the $8.3 billion average issuance for each of the year’s three quarters so far.

Market volatility over the past couple of months has impacted conduit lenders’ ability and desire to originate loans. Nonetheless, four additional deals are expected to price before the end of the year. Up first is a $609 million floating-rate deal from Deutsche Bank, the first of its kind since 2007. Among the loans in the deal is at least a piece of a $425 million mortgage that the bank had provided for the recapitalization of San Diego’s Hotel del Coronado.

Meanwhile, the strong demand that investors have had for AAA-rated bonds with 30 percent subordination has prompted at least a couple of issuers to hint that they might add deals to the pipeline, despite the general pessimism among some conduit lenders.

The latest deal to price, for instance, GS Mortgage Securities Corp., 2011-GC5, saw its long-AAA class, with 30 percent subordination, price at a spread of 170 basis points more than swaps. That compares with a spread of 200 bp over swaps for a deal that priced in early August. Long-AAA bonds on new issues priced as tight as 115 bp over swaps in May.

Evidently, issuers have had difficulties attracting investors to deals’ non investment-grade classes. After a lengthy marketing campaign, the non-AAA classes of the GS 2011-GC5 deal saw a class rated BBB+ by Morningstar, Baa3 by Moody’s and BBB- by Fitch price at a spread of 750 bp over swaps. That’s substantially wider than the level at which the class was first marketed, but is comparable to that of a similar bond from the deal before it, JPMorgan Chase Commercial Mortgage Securities Trust, 2011-C5. That deal’s subordinate classes also took time to price.

Spreads in the secondary market have also widened sharply. They ended last week at a median of 327 bp over swaps for super-senior AAA bonds. That compares with 146 bp over swaps in May, according to the Commercial Real Estate Direct CMBS Pricing Matrix.

JPMorgan Securities was the most active bookrunner of private-label CMBS during the third quarter, handling the books on two deals totaling $1.5 billion. Deutsche Bank was second. It participated in two deals, but received credit for 0.83. Those totaled $1.2 billion. And Wells Fargo got credit for $1.1 billion of transactions.

Rank Investment Bank #Deals Vol $mln Mkt Share %
1 JPMorgan Securities 2 1,504.70 16.85
2 Deutsche Bank 0.83 1,187.11 13.29
3 Wells Fargo Securities 0.83 1,073.68 12.02
4 Goldman Sachs 0.5 872.61 9.77
5 Citigroup 0.5 872.61 9.77
6 UBS 0.5 853.78 9.56
7 Morgan Stanley 0.5 746.00 8.35
8 Banc of America Securities 0.5 746.00 8.35
9 RBS 0.5 740.35 8.29
10 Barclays Capital 0.33 333.33 3.73

As far as loan contributors are concerned, JPMorgan and Wells Fargo were neck and neck, each contributing $1.5 billion of loans, or 17 percent of the volume that was securitized during the quarter. Goldman Sachs contributed $1 billion of loans, or 11.5 percent of the quarter’s volume. All told, 13 lenders contributed loans to the CMBS market.

Lender Volume $mln % of Total
JPMorgan 1,504.70 16.85
Wells Fargo 1,501.27 16.81
Goldman Sachs 1,024.44 11.47
Deutsche Bank 926.95 10.38
Morgan Stanley 904.15 10.12

Oretz Mandy, Commercial Real Estate Direct