A current rally has pushed the long-term super-senior AAA-rated CMBS bonds near the lowest levels that prevailed before the financial crisis in 2008-2009. On Friday, Morgan Stanley, Bank of America and Wells Fargo priced the super-senior CMBS from a $944-million offering at 76 basis points (bp) over swaps, down from 83 bp on the prior deal that priced a week earlier. The post-crisis low of 71 bp that was recorded in August 2014 now appears to be within reach.
CMBS traders and investors attributed the strong demand partly to the possibility that supply will dwindle as the year comes to an end. Also, concern exists that CMBS loan originators will have fewer lending opportunities in 2018 because of a decrease in maturing mortgages and increased competition from agency and portfolio lenders for loans.
“With these CMBS deals establishing new pricing levels, borrower loan spreads have fallen roughly 10-15 bp as declines in CMBS spreads directly correlate to borrower loan spreads,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “As a result, we are seeing interest rates in the 4.25-4.50% for low-leverage transactions and 4.50-4.75% for full-leverage transactions.”
Now may be a good time to secure a fixed-rate CMBS conduit loan as rates may rise in 2018 if the Federal Reserve continues to increase rates in 2018.