The Deutsche Bank Alex. Brown and Goldman Sachs-led GMAC Commercial Mortgage Corp. $864 million CMBS deal priced last Thursday with healthy investor demand judging from the fact that the transaction's ten-year tranches were well-subscribed, said one investor.
The deal's largest tranche, which is a 9.75-year, AAA-rated $546.83 million piece, came in at 54 basis points to swaps, which was well within price talk of 53 to 55 basis points over equivalent swaps.
Market players were cheering, especially in light of the fact that the largest tranche ($566 million) of the PNC 2001-C1 deal - which came to market last Monday - sold at 59 basis points to swaps. That transaction was led by PNC and Morgan Stanley Dean Witter.
A CMBS investor said that the PNC deal suffered from investor fatigue due to the fact that three deals priced the week before last. "People were kind of tired looking at deals," he said.
The GMAC deal, on the other hand, benefited from the fact that it had a 28.4% multifamily component, which allows GSEs to buy into the transaction.
"People feel comfortable with high multifamily components," said the investor. "They like to have that in their deals."
He added that people may see this as an entry point to buying paper, while another CMBS market observer said that this may be taken as a sign that the widening of spreads in the CMBS market has hit a temporary peak.
"The fact that the GMAC deal came in at 54 basis points over swaps is a good sign for the marketplace," said Carl Kane, managing director at Trepp LLC. "Especially considering that the deals that preceded it priced sequentially wider than earlier deals."
Though the quarter-end frenzy is over and issuance, going forward, is likely to proceed in what an investor described as "a somewhat more orderly fashion," there is still pent-up volume and deals that are expected in the next two weeks.
Opryland Hotel is expected to come out with a $275 million transaction via Merrill Lynch and First Union while Mills Corp is likely to come to market with a $335 million deal through Morgan Stanley.
Credit Suisse First Boston and Banc of America are said to be coming out with deals further down the pipeline.
Aside from highly-liquid issues, the best value in the market right now is first-tranche, high-quality paper as well as seasoned second-tranche paper, sources said. Also, Fannie DUS mortgage-backed securities look very good right now.
Additionally, because of low yield levels recently, conduits have become more competitive with portfolio lenders. Since the CMBS market tends to be more spread-oriented, conduits have typically been able to garner a larger share of the origination business compared to portfolio lenders, said Brian Lancaster, a managing director at Bear Stearns.