A flood of CMBS deals slated to price before year-end may result in lower CMBS bond prices if investors do not have the appetite to buy all of the supply. Many CMBS buyers, including insurance companies, are provided annual allocations for fixed-income investments such as CMBS, and once those targets are reached, the investors must sit on the sidelines until a new allocation is provided for the following year.
The timing for potential reduced buying by investors is during a period of robust CMBS issuance prior to year-end. According to Commercial Mortgage Alert, ten CMBS deals were announced prior to Thanksgiving. Three of the deals were conduit offerings totaling $3.4 billion, one of which priced on November 18. Pricing held up well on the $875-million offering led by Wells Fargo and RBS, but it weakened by the time UBS priced its deal on Tuesday, November 25 (see 11.25.14 post “Spreads Widen on Recent CMBS Offering”).
An additional $10 billion in CMBS deals is in the works for December, including $5.6 billion in conduit deals. It’s unclear whether the weakened pricing of the UBS deal reflected reduced trading staff for Thanksgiving or other factors. Some investors questioned the collateral quality in the deal and others noted that transactions including UBS loans tend to price wider than other deals. Market direction on pricing should firm up when the next deal prices in the beginning of December.