With conferences at both ends of the country over the last week or so, commercial mortgage activity has been conspicuously quiet.
Secondary market flows were limited to just a couple of bid lists, most notably a $250 million triple-A list.
Nonetheless, spreads were sticky with the 10-year triple-A spreads at or near 49 basis points over swaps. The primary sector was nearly as quiet with just two issues pricing.
The first was a DUS-backed issue from Fannie Mae that is part of their MAST (Multifamily Assured Scheduled Payment Trust) program. This, the fifth issue since Sept. 2000, totaled $734 million and printed via Salomon Smith Barney and Credit Suisse First Boston. More on the MAST program can be found by visiting the FNMA website at www.fanniemae.com.
The second issue, priced last Thursday, was the Bear Stearns 2002-HOME floater. The $400 million issue consisted of one loan on 93 extended day properties and printed at the narrow end of talk for nearly all tranches. (See scorecards p.35)
Looking ahead, the calendar is stuffed with issues back-loaded into March. Some $13 billion is expected over the course of the first quarter, nearly $10 billion of which is planned for March, most of it conduit business. But as much as this might concern investors expecting some spread widening ahead of the supply, Salomon Smith Barney expects loan balances to shrink as those pricing dates approach.
The firm believes that since conduit originations have been slower in deference to appeasing the subordinate buyer and insurance whole-loan origiantors have been busy originating loans for their own portfolio, currently planned transactions will shrink and/or be delayed until April.
In the main, the CMBS sector continues to benefit from the woes in the corporate arena, not the least of which is the Enron fallout. And while investors will continue to find the diversification and credit protection in commercials favorable, the risk for spreads would come on a corporate spread blowout.
Merrill Lynch's Roger Lehman is vigilant for an unwarranted spread meltdown that would subsequently lead to buying in corporates and out of CMBS, simply on the relative cheapness in credits. Once more, if this occurs during a supply-laden month like March, CMBS spreads will certainly come under pressure.
Overall, however, lower supply projections bode well for the sector. According to Lehman Brothers projections, the first quarter's estimated $10-12 billion is 40% lower than one year ago, and supply will likely be 10-15% short of 2001 for the entire year.
CSFB believes that because of this, spreads should not widen into supply-heavy periods, because the market tends to "react to forward supply rather than deals currently or imminetly in the market."
For 2002, January, April, and July promise to be the slowest months, likely following heavy quarter-end issuance in the prior month.
This suggests that while the credit concerns in corporates will hold spreads in for now, the prospect of a dry April will mitigate any attempts to cheapen the sector during the month of March.