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2 3
A Brief History of CMBS
6048
3427
943756865123322
72
48
33
12416
228
198
167
93
78
51
68
4757
74
3726
16
-
50
100
150
200
250
Issu
an
ce ($BB)
Agency and Private-Label CMBS New Issue Volumes
Private-Label CMBS Agency CMBS
Source: Jefferies & Co., Commercial Mortgage Alert *Projected
CMBS Spread Projections in 2013
CMBS spreads will continue to decline in 2013, although at a
slower pace than in 2012, due to:
– Historically low rates
– Technicals:
Reduced securitized products
Run off in CMBS
– Improving CRE fundamentals
– Relative value vs. competing sectors
– More readily available leverage
– Continued tame spread volatility
3 3
CMBS Conduit Lender Competitiveness Growing
Wider/volatile CMBS spreads and ineffective loan pipeline hedging tools drove up conduit loan rates during 2H11
– Only effective hedge was building in cushion via a higher rate to absorb the spread volatility
– Reduced volatility and strong demand for high-grade risk assets yielded tighter CMBS spreads and sharply lower mortgage rates in 2012
Conduit mortgage rates closing in on portfolio lender rates, but can‟t touch the GSEs
– Conduit rates of 3.90% to 4.50%
– Life Co. rates of 3.50% to 4.50%
– Regional bank rates of around 5.00%
4 3
4.00
5.00
6.00
7.00
8.00
9.00
-
50
100
150
200
250
Am
ou
nt
Co
mm
itte
d (
$B
)
Life Company Vs. CMBS Commercial/ Multifamily
Mortgage Commitments and Contract Interest Rates
(2000-2012)
Life Co. Amt. ($B) CMBS Amt. ($B)
Life Company Rate (%) CMBS Mortgage Rate (%)
Source. ACLI, Jefferies & Co. Note: No CMBS data in late-08 through YE09. *Annualized 2012
5 3
2007: $228 Billion Total Issuance
64 Fixed-rate Conduit CMBS – $192b
2 Single-borrower CMBS – $11b
13 Floating-rate CMBS - $20.8b
-----------------------------------------------------------------------------------------
2009: $2.74 Billion Total Issuance
3 Single-Borrower CMBS – 144(a)
2 Private Freddie K CMBS
-----------------------------------------------------------------------------------------
2010: $11.6 Billion Total Issuance
7 Conduit CMBS – 144(a)
4 Single-borrower /Other CMBS – 144(a)
5 Private Freddie K CMBS
-----------------------------------------------------------------------------------------
2011: $32.2 Billion Total Issuance
18 Fixed-rate Conduit CMBS – Public, 144(a)
8 Single-borrower /CMBS – Private 144(a)
11 Private Freddie K CMBS
-----------------------------------------------------------------------------------------
YTD 2012: $48.0 Billion Total Issuance
27 Fixed-rate Conduit CMBS – Public, 144(a) - $32b
21 Single-borrower /CMBS – Private 144(a) - $10.1b
16 Private Freddie K CMBS - $3.3b
3 Non-Performing CMBS – Private 144(a) - $486mm
CMBS Issuance Volumes Show Slow But Consistent Annual Growth
0
10
20
30
40
50
60
Issu
an
ce ($B)
New Issue CMBS by Deal Type
Other
Floaters
Single Borrower
Conduit/Fusion
Source: Jefferies & Co., CM Alert
CMBS Volume Projections in 2013
CMBS Volume will exceed $70mm in 2013, due to:
More competitive CMBS spreads relative to bank and life
company lenders
High levels of debt and equity capital
Increasing property transactions
Growing pool of refinanceable loans, particularly given
outlook for historically low mortgage rates
Increasingly aggressive first mortgage underwriting
Expanding subordinate debt markets
6 3
Rising Debt and Equity Capital for CRE: Transaction Volume Up from the Trough
7
79102
122
207
308354
513
139
60
123
180
300
0
100
200
300
400
500
600S
ale
s V
olu
me
($
B)
CRE Property Transaction Volume
Source. RCA *Est.
CMBS 3.0 – Increasing Leverage As Per the Rating Agencies
8
60
80
100
120Fixed-Rate Conduit/Fusion CMBS Stressed LTV (%)
Source: Jefferies & Co. *YTD 2012 Data
0.80
1.00
1.20
1.40Fixed-Rate Conduit/Fusion Stressed DSCRs
Source: Jefferies & Co. *YTD 2012 Data
CMBS Maturities Level Off in 2013 and 2014 Before Heading Into the Wall
9
0
20
40
60
80
100
120
140
-
2,500
5,000
7,500
10,000
Loan
Cu
rr. Bal. ($
B)
Loan
Cou
nt
Fixed-Rate Conduit/Fusion Maturity Schedule
(Excludes Defeased Loans)
Outstanding
Balance ($B)
Loan Count
Source: Jefferies & Co. Excluding Defeased Loans. *as of 11/12
Ability to Refinance Depends on Vintage/Seasoning
Majority of loans maturing in „13 originated in „03 and ‟04
„03 loans are structurally more sound, but adverse selection issues weigh on outlook
– Amortizing
– Higher loan coupons at origination than today
– Higher cap rates at origination and thus equity build-up as cap rates lower today
$18B of fixed rate 10-year „03 vintage loans to mature in ‟13
$6.2B of fixed rate 9/10-year „04 vintage loans to mature in „13
10 3
Vintage
Avg.
Coupon
(%)
Avg. Cap
Rate (%)
Avg. Loan
Spread
(BPs)
Avg. Pool
LTV (%)
Avg. 10
Swap Rate
(%)
1998 8.25 8.56 300 69.3 5.25
1999 7.99 8.45 234 69.2 5.64
2000 9.48 8.64 233 69.4 7.15
2001 8.20 8.41 238 68.7 5.82
2002 7.19 7.98 202 68.9 5.17
2003 6.14 7.67 173 66.8 4.41
2004 6.18 7.25 149 68.9 4.69
2005 6.03 6.79 130 68.7 4.73
2006 6.67 6.36 135 68.0 5.32
2007 8.51 5.74 328 69.1 5.24
2008 8.62 5.36 438 66.8 4.24
2009 NA 6.72 NA - 3.44
2010 5.83 6.20 258 57.9 3.25
2011 6.36 5.82 246 63.9 3.90
2012 5.77 4.26 272 62.1 3.05
Sources: Jefferies, Trepp, NCREIF. *Across all property types.
Fixed Rate Coupons and Capitalization Rates by Vintage
CRE Values Remain Depressed Nationally, But Many MSAs in Recovery Mode
Commercial Property Prices (as of 10/12)
– Lower by 22% from 10/07 peak
– Declines vary by asset
type/quality/location
By Property (peak thru 10/12)
– Retail: -35%
– Office: -25%
– Industrial: -23%
– Multifamily: -12%
But Recovery Well Underway
– National all-property composite has
regained 43% of its peak-to-trough loss
Core MSAs in Full Recovery, Non Major
MSAs Lag
– Non-major markets recovered 27% of
peak-to-trough loss
– Major markets recovered 65% of loss
11 3
75
100
125
150
175
200
Commercial Real Estate Values Past the Trough (as of 10/12)
National CPPI
Source. Moody's Investors Service, S&P
159.02 162.27154.72
161.24164.19
123.51131.83
141.97
0.00
40.00
80.00
120.00
160.00
200.00
CPPI by Property Type: 2008 vs. 2012
10/31/08 10/31/12
Source: Moody' s/REAL CPPI
Improving Commercial Real Estate Valuations– An Uneven Recovery
12
75
100
125
150
175
200
225
Moody' s/REAL CPPI by Major/Non-Major Markets vs.
National
Major Mkts.
Non-Major
Mkts.
National
Source. Moody's Investors Service
Source. Moody' s, *as of 10/12.
75
100
125
150
175
200
225
Moody' s/REAL CPPI by Property Type
Office
Industrial
Retail
Apartment
Source. Moody's Investors Service
Source. Moody' s, *as of 10/12.
CRE Supply Technicals Bode Well for Valuations
Retail: Completion taking further dip
Office: Completion dip surpassed the previous lows of 1994 and 2004
Industrial: Showing similar trend to office with triple dips at 1993, 2003 and now 2012
Hotels: Showing a great pick-up in completions, at the peak currently
Apartments: lowest completions since 1994
13
-
50,000
100,000
150,000
200,000
250,000
300,000
Net C
om
ple
tion (SF
x 1000)
National Net Completion (SF) for Retail, Office and
Industrial Propert ies
RT
OF
IN
Source. CB Richard Ellis
-
100
200
300
1,950
2,000
2,050
2,100
2,150
2,200
Un
its (x1000)
Room
s (x
100
0)
National Net Completion Data for Mult ifamily and
Hotels
HT
M F
Source. CB Richard Ellis
Important Disclosures
14 3
This material is provided for informational purposes only and is intended solely for your use. It may not be quoted, circulated or otherwise referred to
without our express consent. This material is a product of Jefferies & Company, Inc. (“Jefferies”) trading and sales desk personnel. This material is
not a research report and the commentary contained herein may contain views that differ from the Jefferies Fixed Income Research Department.
Jefferies may have accumulated a long or short position in the subject security or securities or in related financial instruments on the basis of this
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