Two multi-borrower CMBS issues priced in July at the tightest spreads since the start of the COVID-19 pandemic. The offerings were a $1.1-billion offering led by Deutsche Bank, Citigroup, J.P. Morgan and Goldman Sachs (BMARK 2020-B18) and a $690.6-million offering led by Morgan Stanley and Barclays (MSC 2020-HR8).
The Morgan Stanley deal included 43 loans secured by 76 properties, many of which were closed after COVID-19 struck. Four lenders in total, including the two bookrunners, originated the loans. The average loan size approximated $16 million, and the average loan interest rate was 3.80%. The offering featured multifamily, MHC, self-storage and office loans. The benchmark AAA-rated super senior class priced at roughly 115 basis points (bp) over swaps.
The benchmark AAA-rated super senior class in the BMARK deal priced at 104 bp over swaps. That was in 3 bp from dealer guidance and 6 bp from early “whisper” talk. It was the tightest spread seen on benchmark conduit bonds since the onset of the pandemic in March. Investors attributed the tightening to strong demand and scarcity of newly issued CMBS securities. The D class, rated BBB/BBB+ by Fitch and Kroll, tightened even more sharply, to 385 bp from guidance of 400 bp and whispers of 425 bp. It was at least eight times oversubscribed.
“There is a ton of demand out there and not a lot of paper,” said one investor. “The growth of 30-day delinquencies slowed in July, so fundamentals are pointing in a good direction. There is real-money demand for CMBS bonds that look increasingly clean and still have a bit of yield.”