The CMBS market is “business as usual” despite headwinds from many directions. First, the Russian invasion of Ukraine on February 24 sent a chill though the capital markets, including CMBS. Then, with supply chain issues occurring throughout much of the world, inflation has surged in 2022 to date. To combat inflation, the Federal Reserve increased its benchmark interest rate 50 basis points (bp) on May 4, with more increases to come, including another 50-bp rise expected on June 15. Now, market participants are worried about these rate increases resulting in a recession.
Since February, the 10-year Swap rate (and similarly, the Standard Overnight Financing Rate, or SOFR – the new index for CMBS loans) has increased 75 bp to a current level of roughly 2.95%. At the same time, spreads on new-issue CMBS securities have also widened, resulting in higher interest rates to borrowers from both higher Swap rates and widening spreads on CMBS securities. Despite all the market volatility, the CMBS conduit loan market is functioning fine. Recently, Citigroup, Goldman Sachs and other bankers priced a $1.12-billion CMBS offering secured by 37 mortgage loans. The super-senior AAA-rated securities widened 17 bp from initial price guidance, but all the bonds in the issue were placed.
“The CMBS conduit loan market is ‘open for business’ as lenders are actively seeking multifamily, manufactured housing community, self-storage, industrial, retail and office loans,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “Even hotel loans are widely available for properties that are seeing a strong rebound in performance post-COVID.”