According to “Commercial Mortgage Alert,” commercial mortgage-backed securities (CMBS) prices rose again this week, continuing a month-long rally. Spreads on legacy CMBS paper tightened Wednesday, January 11 as industry professionals returned from the Commercial Real Estate Finance Council’s annual winter conference in Miami Beach, FL. Some of those gains were surrendered Thursday when opportunistic sellers met the surge in demand by offering large bid lists. Still, CMBS values overall wound up higher than a week ago.
Evidence of the rally has been largely restricted to legacy CMBS issued prior to 2008 since bonds from post-crash deals still don’t trade that often. But the higher prices bode well for the first multi-borrower issue of the year — a $1-billion offering by Goldman Sachs, Citigroup and Archetype Mortgage Capital that is slated to hit the market next week.
“The next deal to come out of the pipeline is going to reset the spread benchmarks,” said one CMBS trader. “And given the momentum we’re seeing now, they’re going to be tighter than what we’ve seen for a long time.”
Early guesses are that the AAA-rated long-term bonds from the super-senior portion of the offering could be shopped in the range of 105-120 basis points (bp) over swaps. That would be down from final pricing of 130 bp on equivalent bonds from the last multi-borrower transaction, a $673.9-million issue by UBS and Natixis that priced on December 9, 2011.
“We have been aggressively trying to buy CBMS for Country Bank, but we keep being outbid on the legacy CMBS from 2005 and 2006 transactions that have passed our underwriting analytics,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “The rally is great for CMBS borrowers, not so much for CMBS investors.”