After spreads widened on a recent UBS-Barclays CMBS transaction that priced on April 11, commercial MBS buyers snatched up three multi-borrower offerings totaling $3.4 billion this week, pushing spreads tighter with the pricing of each transaction, according to Commercial Mortgage Alert. Long-term super-senior bonds from the most recent issue, an $876.7-million offering led by Wells Fargo and RBS, saw very strong demand, pricing at 81 basis points (bp) over swaps. That was down 2-4 bp from price guidance.
“We initially were thinking an order for $5 million of Class B in the 150 bp area after just buying $4 million of Class B from the UBS-Barclays offering at 160 bp last week,” commented Jim Brett, who performs CMBS analytics among his myriad of other duties at ValueXpress. “But as we began our work, we got the call the class was oversubscribed three days earlier than expected and that pricing was being tightened to 135 bps, below our hurdle rate.”
“I was really bummed that we were unable to get bonds from the Wells-RBS issue as the quality of the collateral and the underwriting metrics were strong,” commented Michael D. Sneden, Executive Vice President at ValueXpress.
The tighter spreads took some of the pressure off potential spread increases to borrowers. While CMBS spreads were pushing marginally higher, originators were generally holding spreads to borrowers steady, as competition remains strong for good deals. This was squeezing profit margins close to a point where lenders were going to be forced to increase spreads to maintain profitability levels. With tighter CMBS spreads, lenders can leave spreads alone for now.