The week following the Commercial Mortgage Securities Association annual conference in Florida normally sees a pickup after a pre-conference moratorium on issuance. Now five deals are in the CMBS pipeline and one is already setting price guidance.
The afterglow of the conference is about ready to morph into some real production. Spreads are mostly unchanged to slightly tighter as the secondary market stepped to the front and fed strong demand both on dealer inventories and bid list supply. Spreads are almost a basis point tighter in the IGs and about unchanged to a tad wider in the lower tranches, as most of the secondary items sold were longer triple-As. This temporarily sated the demand of under allocated accounts still light from the last deal barrage of 2006. The pipeline is not expected to get in the way of spread tightening until the supply picks up next month, with more than $30 billion slated to hit the shelves.
Private label fixed-rate CMBS
Of the five deals scheduled to come out this month, three are fixed rate, including the Morgan Stanley shelf (TOP) for which pricing guidance was announced last week. Spreads on the $1.55 billion MSC TOP 25 are in slightly with the 10-year super-senior class pegged at 22 basis points over swaps, in two basis points from the last deals of 2006. The rest of the classes appear unchanged with the exception of the shorter triple-As, which are one tighter at 15 basis points over swaps on the three-year. That segment of the market has suffered the past year as a higher short-end yield curve has ramped up funding costs and sent buyers elsewhere in search of better yields on their expense money.
The other two deals in the works are Bank of America Commercial Mortgage's first release of the new year, the $2.5 billion BACM 07-1, and another more than $4 billion effort from LB-UBS Commercial Mortgage Trust. The total fixed rate pipeline is seen at $8.55 billion for January, compared with $5.4 billion at this same time last year.
The average fixed-rate CMBS deal last year increased to $2.501 billion, according to the Thomson Financial database, and deal size is expected to further increase in the coming year as higher property costs fuel the steady rise. In fact, the Goldman Sachs/RBS Greenwich Capital GG label is slated to issue a record $6.5 billion deal next month!
Floating-rate issuance also gets off the mats this month with Wachovia Securities' WHALE and Morgan Stanley Capital's XLF shelf on tap with deals in the coming week. The WHALE offering of $3.23 billion surpasses the previous size of last October's Citigroup floater. Spreads are not expected to come in as much as last year's run, when short triple-A paper spreads were nearly cut in half at the start of the year.
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