New CMBS loan applications should see a 15-basis-point (bp) decrease in spread based on the results of the most recent CMBS offering from RBS and Wells Fargo that is expected to price on Friday, November 1. The benchmark super-senior class of the offering was being marketed at a spread of 95 bp over swaps. That is down from 105 bp on the equivalent long-term, super-senior tranche of the previous conduit issue, a $1.2-billion transaction that priced on October 24 (COMM 2013-CCRE12). Dealers were reporting strong demand across all of the deal classes.
“We like the asset quality and underwriting characteristics of the RBS-Wells issue and own bonds from four prior RBS-Wells deals,” commented Jim Brett, head of CMBS analytics at ValueXpress. “The RBS-Wells offerings typically have high-quality assets and above-average pool debt yield, which is attractive.”
New CMBS conduit loan spreads should fall about 15 bp in the next few days into a range of 225-250 bp for commercial properties and 250-275 bp for hospitality. A general rule is that borrower spreads move bp for bp with changes in the benchmark super-senior spread from the most recent CMBS issue; however, loan spreads are falling disproportionately to the most recent benchmark super-senior class as CMBS loan originators are cutting their profit margins to compete for additional volume in a slower market.
With the 10-year Swap Index used to set CMBS loan rates at 2.65%, expect to see CMBS conduit loan rates to borrowers for larger commercial properties fall to the 5% area.