Commercial mortgage-backed securities had extraordinarily active trading last week, market sources said, as well as excellent two-way flows and a very successful $886 million conduit from GMAC Commercial Mortgage Corp.
"We saw two large bid lists of Tier 1's, and they traded very well," said Michael Youngblood, managing director of real estate capital markets at Banc of America Securities Inc. "One was for $200 million and the other was for $100 million. We bought many of the bonds and we have already moved them."
Additionally, Youngblood mentioned seeing bid lists of interest-only strips as well. On the week, five-year triple-A CMBS were two basis points wider, hitting 105 over. Ten-year triple-A's were one basis point wider, hitting 139 over.
Banc of America was recommending to its clients to sell 10-year non-call 9.5-year DUS and to move into 10-year triple-A paper. It also recommends buying five-year triple-A CMBS relative to prime and subprime non-agency product, and to roll down out of triple-B's into triple-B-minus' and double-B's.
As a well regarded Tier 2 issuer, GMAC did very well on its latest CMBS offering, pricing the AAA-rated issue of $537 million at 142.5 basis points over Treasurys. The securities were backed by 137 fixed-rate loans on 179 commercial properties and apartment buildings. The issues are called GMAC 2000-C1 and were sold by Deutsche Bank Alex. Brown and Goldman, Sachs & Co.
The sale's other AAA-rated part, a 5.71-year $124 million issue, sold at a yield of 33 basis points over Libor and 110.5 basis points over Treasurys, according to GMAC. Interestingly, the deal also had a 33.4% multifamily content.
"Spreads came in at Tier 2 levels," said Banc of America's Youngblood. "It wasn't as if the market revalued them by a notch; they were fairly priced relatively to Tier 2. They didn't make any statement or to roll up. Overall, the market is expecting a much larger issuance volume of conduit deals this year, so there is clearly a sentiment to buy them when one can. This may be the largest conduit deal of the next nine months. It would have been a legitimate interpretation for investors to think (the GMAC deal) is one of the highest quality deals in the 12-month recent run of CMBS."
There are three CMBS deals coming up next week, one from Chase, another floater from Salomon Smith Barney, and a $1.1 billion deal from Starwood Financial Inc., which will be managed by Merrill Lynch & Co. Sources said price talk was not available by press time.
Fitch-Duff on Our Minds
On the residential side, many market participants were talking about the recent merger between Fitch IBCA and Duff and Phelps (see story p. 1).
"Deals that have been rated individually by Duff or Fitch are likely to see their valuation improve in the market, perhaps not immediately, but when the combined firm conducts an annual review and reaffirms the credit, it will set a basis for value appreciation, where it will be a major rating agency signing off on them, not a minor one," said an MBS market source.
"I've always had a very high regard for the individual analysts at Duff and Fitch," added another source. "Why they lacked was a critical mass, and they lacked longevity. But the analysts are every bit as professional and capable as their counterparts at Moody's and Standard & Poor's.