Barron's/Levy & Co. National Mortgage Survey (Return to Research)

IT'S THE CALM BEFORE THE STORM -- literally and figuratively -- as the commercial real estate market gets ready for an onslaught of securitizations in June and coastal areas brace for the start of hurricane season. The commercial mortgage-backed securities market could see some $20-$25 billion in new offerings this month which would top off a gangbusters first half, though the remainder of the year looks to run at a much slower pace, according to the Barron's/John B. Levy & Co. National Mortgage Survey.
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AFTER A WHITE-HOT PACE of issuance in March, new offerings of commercial-mortgage-backed securities have practically disappeared, according to the Barron's/John B. Levy & Co. National Mortgage Survey.
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THE DOLLAR VOLUME OF MORTGAGES on commercial real estate hit the public marketplace at a record level in March, according to the Barron's/John B. Levy & Co. National Mortgage Survey. The market for commercial-mortgage-backed securities absorbed some $29 billion, compared with the previous record of a shade under $23 billion set in January 2005. But don't look for this party to continue; the next few months will show modest volume in CMBS, largely because of a downtrend in sales of income property, most of which trigger fresh financing.
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THE MARKET FOR commercial-mortgage-backed securities opened the month by absorbing several offerings, led by CMBS issues from Wachovia, Citigroup, Bank of America and JPMorgan, according to the Barron's/John B. Levy & Co. National Mortgage Survey.
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INVESTORS IN LOANS on commercial real estate -- insurance companies, pension funds and Wall Street firms -- continued competing for business last month, squeezing spreads between interest rates on commercial mortgages and rates on Treasuries. According to the Barron's/John B. Levy & Co. National Mortgage Survey, the narrowing was only slight on loans representing 75%-80% of property value. But for institutions seeking low-leverage mortgages -- generally defined as 65% loanto- value or less -- competition narrowed spreads to as low as 75 basis points, or a scant three-quarters of a percentage point, over Treasuries. The spread had recently been around an already thin 85-90 basis points.
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TREES MAY NOT GROW to the sky, but it sure looked that way in commercial real estate last year. According to the Barron's/John B. Levy & Co. National Mortgage Survey, loans on commercial properties hit record volumes, surprising even industry participants; a staggering amount of income-producing real estate was sold, and spreads between commercial-mortgage yields and comparable Treasury yields tightened.
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WE'VE ALL EXPERIENCED that uncomfortable feeling of pushing away from the Thanksgiving table after eating one too many slices of Aunt Betty's blueberry pie. That's how the commercial mortgage-backed securities market feels these days -- too much food, too few mouths -- according to the Barron's/John B. Levy & Co. National Mortgage Survey. The market for CMBS has literally exploded this year -- up more than 60% from the previous record set just last year. As the year comes to a close, analysts are expecting spreads to drift somewhat wider in order to entice big money managers and insurers to buy yet another $20 plus billion in offerings which remain to be priced in the next two weeks.
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