CMBS issuers are finding stable CMBS pricing despite heavy issuance as dealers rush to clear inventory ahead of risk-retention rules that become effective December 24. Six CMBS deals were in the market in the first week of December, a few of which have already priced in a range consistent with prices seen in the latter part of November. This is great news for the CMBS market as in prior periods of heavy issuance, most recently fall 2015, spreads on CMBS widened as dealers could not find enough buyers without providing higher yields. In January 2016 we wrote:
CMBS spreads continue to drift wider in 2016, following a pattern of wider spreads that began in the summer of 2015. Three CMBS deals in the market have released pricing guidance in the range of 155-158 basis points (bp) over swaps for the benchmark AAA-rated senior CMBS class. That level is up from the 136-140 bp range from three CMBS deals that priced in December 2015. Equivalent CMBS spreads for the AAA-rated senior class were 100-110 bp last summer.
This go-round is different. Of the total $4.8 billion in the six deals, three deals priced the super-senior AAA-rated CMBS in a range of 110-114 bp over swaps, consistent with the 100-120 bp pricing for comparable CMBS in November. Dealers for the remaining three deals provided pricing guidance of 112-118 bp and have reported good demand for most of the bond classes. The subordinate BBB-rated CMBS also priced range-bound and those being currently marketed are expected to price with the range of 565-590 bp.
These six issues may wrap up the year for CMBS, setting the stage for what could potentially be a slow start for 2017.