Wider CMBS Spreads Create New Hurdles For Securities
Record-high CMBS defeasance (early repayment) last year helped ease the coming CMBS “maturity wall,” but volatility and wider CMBS spreads has that repayment activity slowing.
AAA spreads have gone from 90 bps to the 165 to 175 range since June, while BBB- spreads have moved from 375 to 400 bps six months ago to 750 to 900 bps.
The wider spreads have slowed defeasance activity from its $21.2B peak last year, and also has cut new issuances to $13.6B in 2016, down from $20B over the same period last year, National Real Estate Investor reports.
Borrowers that defease loans often take out new CMBS loans to cover, which made sense in May when CMBS rates were at 4% to 4.25% but the recent 100-plus bps jump takes away that incentive.
“There is really no reason to do a defeasance, unless of course they think they market is going to be a lot worse when the loan becomes open for pre-pay,” Ory Schwartz, senior VP at debt and equity servicer NorthMarq. [NREI]
