Market Trends


May 28, 2020

Capital Markets commentary

Capital Markets commentary
graph of pricing spread


The equity and credit markets experienced their second consecutive week of relative stability despite continued weak economic data and warnings of a potentially delayed recovery. The market’s newfound stability is attributable to the anticipated increase in economic activity across regions that have begun to re-open, as well as the continued stimulus from the Federal Reserve and Federal Government. The improved market sentiment has allowed for the most robust week of commercial real estate capital markets activity since the onset of COVID-19, which included the pricing of five new deals and a $1.25 billion REIT bond offering. The five deals that priced this week included the first post-COVID-19 CRE CLO, two private label conduit deals, an SFR securitization, and a Freddie Mac K-Series deal.

As our clients continue to navigate the real estate capital markets and lenders become increasingly selective with respect to the capital deployment, Walker & Dunlop’s New York Capital Markets team is here to leverage our deep market expertise to assist as they seek financing for their projects or look to reposition liquidity.

Walker & Dunlop’s New York Capital Markets Team is actively marketing and has closed nearly $2.0 billion worth of financing and note sale opportunities across the United States, including

  • Closing on a Note Sale at a slight discount to par for a nearly complete luxury condominium project in the Southeast
  • Closing on a luxury condominium construction loan in New York City
  • Preparing to close on a floating-rate office acquisition loan in the Midwest
  • Marketing a large permanent refinance of a multifamily portfolio in the Northeast
  • Marketing a mixed-use office and retail repositioning financing opportunity on the West Coast
  • Marketing multiple multifamily rental development deals throughout Manhattan and Brooklyn

General themes and observations

Note sales update

As short-term forbearance and relief wear off, we are seeing an increase in the number of note sales as lenders evaluate their portfolios and determine what their focus will be through the current market cycle. For credit providers seeking to either reposition liquidity across their business lines or maintain solvency, today’s market has ample competition amongst note buyers to drive prices near par. Last Friday (5/22), Walker & Dunlop’s New York Capital Markets team closed on a note sale of a luxury condominium tower slightly below par in the Southeast. This transaction featured a highly targeted marketing approach and demonstrates our ability to execute in the current market. As broader distressed conditions persist, we expect a continued increase in note sale volume and less available capital to purchase them, which could result in discounted sales. As volume increases, Walker & Dunlop will continue to assist our clients by leveraging our proprietary tools and data to evaluate their credit and note sale opportunities to best assist them in strategically navigating the current market.

Where liquidity exists

The market’s continued stabilization has led to increased lending activity, as we continue to see a wide range of capital providers quote and reach advanced stages of due diligence on new deals. We are currently marketing a large, permanent refinance for a multifamily portfolio that has garnered strong interest from a variety of capital providers, including agencies, commercial banks, and life insurance companies. We recently launched an office acquisition and redevelopment opportunity on the West Coast, which is generating significant interest from both banks and credit funds. Last week, the Walker & Dunlop New York Capital Markets team closed a South Florida retail loan and a $133 million Upper East Side, Manhattan, luxury condominium loan.

As lenders have largely concluded the initial process of portfolio evaluation, strategizing, and ensuring they are adequately capitalized, many lenders are again quoting new deals. Lenders are proving to be opportunistic and are demanding more in terms of both pricing and structure. Fannie and Freddie continue to quote multifamily deals per their mandate and have increased their competitiveness with regards to both pricing and structure. Banks and life insurance companies continue to quote opportunistically, and CMBS lenders are beginning to quote new deals as they clear their existing inventory to receptive CRE bond investors. Additionally, Progress Residential successfully followed Corevest and issued the second post-COVID-19 single-family rental securitization, which underscores the continued viability and
efficacy of the CRE capital markets across most asset classes.

Update on Federal Reserve CRE securities support

The Federal Reserve remains active in the debt capital markets and continues to purchase Treasuries, Agency CMBS and RMBS. To date, the Federal Reserve has purchased over $8.9 billion of Agency CMBS, however, market stabilization has allowed the Federal Reserve to begin tapering off such purchases. This week marks the first week since the program began in which the Federal Reserve will not purchase any Agency CMBS; however, they will purchase up to $500 million of Fannie Mae DUS securities next week.

Last Wednesday (5/20), the Federal Reserve announced that the first subscription date for the TALF program will be on June 17th, 2020. TALF offers a facility of up to $100 billion of non-recourse debt to finance purchases of the eligible securities, which will include consumer ABS and legacy CMBS. These loans require AAA rated bonds as collateral and have a term of three years. For legacy CMBS bonds, interest rates will be 3-year LIBOR + 125 bps, and haircuts will range from 15% to 17% depending on the remaining term. The TALF program is expected to increase liquidity in the CMBS markets by providing financing for investors in AAA rated CMBS bonds.

Update on capital providers


Last week’s robust capital markets activity included the pricing of five deals, highlighted by the first post-COVID-19 CRE CLO and two private label conduit deals, which were all well received. On Friday (5/22), J.P. Morgan, Deutsche Bank, and Goldman Sachs priced their BMARK 2020-IG3, which, similar to their BMARK 2020-IG2 deal, featured a pool composed exclusively of investment-grade credit-opinion loans. BMARK 2020-IG3 priced slightly wider than IG2, with AAA rated LCF bonds pricing at S+145 vs. S+138, and BBB rated bonds pricing at S+555 vs. S+500. On Tuesday (5/19), Arbor Realty priced its first-ever fixed-rate conduit deal, consisting of 49 DUS quality multifamily loans. The deal was more than 10x over-subscribed across all classes, leading Arbor to price the LCF AAA rated bonds at S+175 and BBB rated bonds at S+500. A $731 million conduit deal led by Wells Fargo – WFCM 2020-C56 – will be the next test of new issuance viability and is expected to price in the next week. At least five more conduit deals are currently in the securitization pipeline. As lenders continue to clear their balance sheet, the consistent pricing in new issuance CMBS pricing has instilled confidence and allowed most CMBS lenders to resume quoting new deals.

Fannie Mae and Freddie Mac

Last Tuesday (5/19), Freddie Mac went to market with their flagship 10-year fixed-rate K-Deal, which was well received and oversubscribed across all bond classes. The $1.07 billion deal priced the largest A2 tranche at S+56, a tightening of over 40 bps since the FREMF 2020-K106 priced on 3/17 at the height of market uncertainty. As the market stabilizes, the Federal Reserve continues to provide support in the secondary market and has purchased over $8.9 billion of GSE CMBS securities to date, but has indicated plans to taper agency CMBS purchases because of improved market performance. Freddie Mac and Fannie Mae have started pulling back many of the COVID-19 related structural elements, and Freddie Mac has begun quoting more competitively with regards to rate, particularly on
properties that meet its mission-critical criteria.

Commercial banks

Commercial banks are refocusing on commercial real estate, as PPP loan processing has virtually concluded and have returned resources to the sector. As banks continue to proactively work with their clients to achieve optimal outcomes, many that have resumed quoting new deals are focusing solely on their existing clients. Commercial banks have indicated a willingness to quote deals as low as L+200 bps for top clients (subject to a 1.00% LIBOR floor) while most bank loan opportunities have priced between L+250-300. Many of these transactions feature structural elements such as up-front funding of the first six months of debt service, index floors, and/or cash management. Sponsors have been able to take advantage of rate swaps, which can allow an all-in fixed-rate coupon in the mid-to-low 300’s. The focus on existing relationships has made execution for larger loans challenging, as many banks are unable or unwilling to participate in syndications. We have found some larger European banks are willing to quote these larger loans as they see US CRE lending as an accretive alternative to other investments in their negative rate environment.

Life insurance companies

Life insurance companies remain an attractive source of capital for sponsors seeking long term, fixed-rate, and conservatively leveraged credit with the benefits of portfolio lender execution and are pricing at mid-300’s all in coupons. Leverage remains conservative as many groups will only quote up to 60% loan-to-value, even for stabilized multifamily product.

Credit Funds and mortgage REITS

Credit funds are strategically allocating their capital to find relative value in public and private credit markets, and many are willing to quote new deals in their favored market sectors. Opportunities for leverage from warehouse line providers and repo lenders are slowly returning to the market, and last Tuesday (5/19), Argentic priced the first post-COVID-19 CRE CLO. Argentic’s AREIT Trust 2020-CRE4 $607.4 million deal marks the return of non-mark-to-market financing for credit funds. The static pool initially offered only AAA rated bonds which priced at L+265, but after significant over-subscription and demand, Argentic offered down to the A- rated bonds which priced at L+600. The return of financing is allowing credit funds that rely on leverage to begin opportunistically quoting new deals.

Walker & Dunlop’s New York City Capital Markets team continues to monitor the economic and social issues affecting our clients through this market cycle. Our detailed, data-driven approach, together with our deep relationships with capital providers and vast experience in the commercial real estate debt and equity markets, enables us to empower our clients to achieve their goals through the market cycle. Please reach out to our capital markets experts if there are any transactions we can help you with.

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