The DDR deal's pricing at better-than-expected spreads is undoubtedly a positive for the CMBS market, but it might have resulted in some misplaced market optimism, said Malay Bansal, managing director at NewOak Capital.
"DDR and the follow-up deals will be single-borrower deals,” Bansal said. “Hopefully that will encourage conduit lenders to start originating new loans at some point, and with lower LTV on new loans, these deals will attract investors, as clearly demonstrated by the pricing on the DDR deal.”
However, commercial real estate prices, as measured by Moody's/REAL index, are down 42.9% from the peak and have now retraced all the price gains since Sep 2002. New loans will be based on these new lower values, and that would not be helpful to the legacy triple-B and triple-B minus bonds.
Bansal said that while the CMBX registered triple-B and triple-B minus bonds prices as up one to four points last week and triple-As were down slightly, any optimism for those bonds from the DDR deal will be misplaced.
“Bottom of the stack needs to adjust, and senior bonds are still the best place to be in legacy CMBS," she said.