According to Commercial Mortgage Alert, the latest weakening in the CMBS market makes it likely that a pair of $1.5-billion multi-borrower issues due to price the week of July 18 will wind up with senior spreads matching the widest levels seen this year. Goldman Sachs and Citigroup are leading one of those offerings, and Starwood Property is also contributing loans. Wells Fargo and RBS are bringing the other deal, which includes mortgages from GE Capital.
The latest turn in the market has erased recent gains on senior CMBS bonds. Spreads on long-term, triple-A bonds from fresh conduit issues had contracted to about 130 basis points (bp) over swaps at the end of June. But those benchmark spreads now have returned to the 140-bp level seen a month ago, when a long-running CMBS rally ground to a halt and bond values plummeted.
CMBS spreads are widely expected to keep fluctuating as debt crises and economic concerns roil global financial markets, before tightening later this year. As demonstrated this week, it remains difficult for lenders to time their offerings to achieve the narrowest spreads.
Goldman and Citi are marketing the $85.3 million of 2.4-year senior bonds from their latest multi-borrower offering with a suggested spread of 80-85 bp. But for the longer-term classes of triple-A paper, they floated price talk yesterday of 145-150 bp. Those classes consist of $332.5 million of 4.9-year paper, $90.7 million of 7.4-year notes and $753.7 million of 9.8-year bonds. The guidance is the same for all three of those tranches due to a steep yield curve on benchmark swap rates, which recently has been sufficient to compensate investors for taking longer-term risks.