7.1.15: Current Loan Applications Require “A Conversation with the Borrower”

The loan spread in many CMBS conduit loan term sheets executed by borrowers in the past few weeks is not at levels that can be closed profitably, leaving lenders and mortgage brokers in a quandary as to what to do. Loan spreads have moved out anywhere from 10-20 basis points (bp) as the pricing for CMBS securities has weakened recently on a variety of bad economic news, including Greek debt default, collapse of the Chinese stock market and debt challenges in Puerto Rico, all of which has made buyers of bonds, including CMBS buyers, jittery. As a result, with a lot of CMBS supply, dealers are widening spreads to sell all the bonds. Here is a snapshot of super-senior AAA-rated benchmark CMBS spreads provided by a partner:

Deal Name Size (MM) Px Date Sr AAA
MSBAM 2015-C23 1,073 06/05/15 87
COMM 2015-LC21 1,221 06/12/15 92
WFCM 2015-C29 1,177 06/19/15 95
CGCMT 2015-GC31   723 06/24/15 95
MSC 2015-MS1   775 06/25/15 93
WFCM 2015-NXS2   914 06/30/15 100
COMM 2015-PC1 1,463 07/01/15 107

Each bp increase in the super-senior AAA bonds equals roughly a one-point increase in spread to the borrower to maintain the same profitability. Hence, if the market has moved from S+87 to S+107, which is a total of 20 bp, that means term sheets written when prices were S+87 are under water by 20 bp today, to maintain the same profit.

“Since we are active in the buy-side of CMBS securities, we are familiar with how all this works and we are advising our clients exactly where their loans spreads sit in the market. This way, there is no shock should their spread be adjusted to market levels at closing,” commented Michael D. Sneden, Executive Vice President at ValueXpress.

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This entry was posted in CMBS, CMBS Conduit Loans, Commercial Lending, Commercial Real Estate Loans, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress and tagged , , , . Bookmark the permalink.

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