barclays cmbs strategy weekly comparing bookrunners versus other contributors in
TRANSCRIPT
Securitization Research U.S. CMBS Strategy
29 May 2015
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 14
CMBS Strategy Weekly
Comparing bookrunners versus other contributors in CMBS 2.0 originators Market Monitor 2
The CMBS market slipped in the Memorial Day-shortened week, as concerns over Federal Reserve rate hikes pushed the market wider. The slip represents the first movement in CMBS spreads in nearly a month, as the market has remained largely rangebound this spring.
Comparing bookrunner versus non- bookrunner origination quality in CMBS 2.0 3
We take a look at origination quality and performance of CMBS 2.0 loans contributed by the bookrunners versus other originators. There are some signs that non-bookrunner originations have higher leverage and have had more early transfers to special servicing.
Exposure in CMBS: Texas and Oklahoma flooding 5
We look at CMBS exposure to the flooding in Texas and Oklahoma, but expect few effects on CMBS.
Federal Reserve Board’s proposal on adding municipal bonds to high-quality liquid assets (HQLA) 7
On May 21, 2015, the Federal Reserve Board made a proposal to add US municipal bonds to category 2B assets under the Liquidity Coverage Ratio (LCR) requirements, we take a look at what it means for agency CMBS.
Appendix 8
Weekly new issuance 12
Research catalog 13
Jasraj Vaidya +1 212 412 2099
[email protected] BCI, US
Aaron Haan +1 212 412 3661 [email protected]
BCI, US Mengbai Wang
+1 212 412 2099 [email protected] BCI, US
www.barclays.com
Barclays | CMBS Strategy Weekly
29 May 2015 2
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The CMBS market slipped modestly wider this week, in line with the rest of the securitized products market. Underlying fundamentals remain positive in the CRE market as the economy continues to recover. We prefer new issue credit curve flatteners in the CMBS 3.0 space, but moving higher up in the capital stack to avoid worsening underwriting. In particular, we recommend going long AA/single-A rated tranches in recent issuance and investing in BBBs from the 2013 vintage, particularly H1 13 deals. We recommend staying neutral on 3.0 dupers, which have a limited ability to tighten further in the face of increasing supply and low absolute yields. We are also neutral on legacy CMBS, where AJ and mezzanine bonds appear priced to optimistic scenarios and senior bonds are exposed to fast CPY speeds. In agency CMBS, Freddie K 10y A2 seniors have returned to a more historical range versus conduit AAAs, but remain attractive compared with similar duration agency MBS.
CMBS index monitor
U.S. Agg.
Comp. CMBS Index 2.0
2.0
AAA
2.0
AAA LCF 2.0 AA 2.0 A 2.0 BBB
Agency All
Agcy CMBS 8.5+
Agcy CMBS Mezz
Total return (bp)
May. 23-May. 28 32 33 46 45 59 50 53 60 46 71 48 MTD May. 28 -13 -13 -27 -26 -51 -38 -28 -9 -5 -34 -6 YTD 2015 155 164 221 203 229 282 303 394 197 176 359
Excess return to Treasuries (bp)
May. 23-May. 28 -8 -7 -12 -11 -22 -21 -13 -3 -4 -14 -2 MTD May. 28 0 0 -4 -5 -13 -7 -1 17 12 9 11 YTD 2015 47 54 78 62 76 126 144 236 46 30 213
Excess return to Swaps (bp)
May. 23-May. 28 -1 -1
MTD May. 28 -1 0
YTD 2015 47 53
Source: Barclays Research
Comparing bookrunners versus other contributors in CMBS 2.0 originators Conduit CMBS secondary spreads were moderately wider w/w, and the issuance pipeline remained quiet after the long weekend but should pick up next week. We examine the origination quality/performance of CMBS 2.0 loans contributed by the bookrunners and other originators. We find some signs that non-bookrunner originations have higher leverage and experience more early transfers to special servicing. We also look at CMBS exposure to the flooding in Texas and Oklahoma, but expect few effects on CMBS.
The CMBS market slipped in the Memorial Day-shortened week, in line with other securitized credit sectors in a week when rates rallied. The slip represents the first movement in CMBS spreads in nearly a month, as the market has remained largely range-bound this spring. The move followed the weakening in equity markets early in the week, as positive data, such as strong new home sales (US new home sales rise strongly in April, May 26, 2015), increased concerns about pending rate hikes.
In secondary trading of recent issuance, LCF AAA bonds were 2bp wider, to S+88bp. More credit exposed single-A rated mezzanine tranches were 3bp wider, to S+210bp, and BBB rated mezzanine tranches were also 3bp wider, to S+341bp. Agency CMBS spreads held up a bit better than conduits this week, with the 10y Freddie K 10y A2 tranches flat at S+45bp. Fannie DUS pools were 2bp wider, to S+57bp. Unguaranteed Freddie K tranches were flat to a bit tighter, with the BBB rated C tranche moving in 5bp, to S+205bp, and the single-A rated B tranche remaining flat at S+155bp. Ginnie Mae project loan REMICs were moderately tighter, with the front 3y bond tightening 5bp, to S+85bp, at 15 CPJ, and the 5y sequential tightening 5bp, to S+120bp, at 15 CPJ.
Barclays | CMBS Strategy Weekly
29 May 2015 3
No new issuance in holiday-shortened week, but set to return No new deals priced this week, as issuers decided to hold off on issuance in the holiday-shortened week. However, we expect issuance to pick up significantly next week and for the rest of June, with up to eight, but more likely around six conduits potentially pricing based on CM Alert issuer surveys (CMBS Strategy Weekly, May 15, 2015), which also reported that two conduits are already set to begin marketing in the coming days, in addition to a $282mn small balance/CRE CLO deal by Lone Star. The recent increase in US Treasury rates in May should help pricings, particularly for yield-focused investors at the top of the capital stack. However, if all of the potential supply comes too fast for the market, this effect may overwhelm the effects of higher rates and lead to wider spreads.
Comparing bookrunner versus non- bookrunner origination quality in CMBS 2.0 A rising trend in the CMBS new issuance market has been the growth of loan contributions to CMBS deals from smaller third-party originators that are not bookrunners of the CMBS transactions. Most conduit deals have two bookrunners (such as Morgan Stanley and Bank of America for the MSBAM shelf) and possibly up to three, and they usually contribute the majority of loans to the deal. Using Commercial Mortgage Alert data, there have been thirteen bookrunners of conduit CMBS 2.0 to date: Bank of America, Barclays, Cantor Fitzgerald, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Jefferies, Morgan Stanley, RBS, UBS, and Wells Fargo. The non-bookrunner originators may be smaller or more specialized lenders, the largest among which are Ladder, Natixis, and Rialto.
We examine loans originated by both bookrunner and non-bookrunner originators to see if there are trends in underwriting quality between the two groups. Bookrunners are generally large investment banks, possibly with stricter underwriting processes and larger balance sheets, allowing them to compete on the loan rates better. At the risk of generalizing, for smaller non-bookrunner lenders to be able to compete, they may have to offer more leverage or looser underwriting terms (such as partial release, lockbox, and reserve requirements).
Non-bookrunner share of issuance increasing; largest in multifamily sector The share of non-bookrunners in CMBS 2.0 has grown in the past few years. Their share has increased to as much as 35% of new issuance in 2015 from a low of 9% in 2011, steadily increasing each year as more and more conduit lenders were set up (Figure 1). Across
FIGURE 1 Non-bookrunner originations are increasing share in CMBS
FIGURE 2 Most common in multifamily sector
Source: Commercial Mortgage Alert, Trepp, Barclays Research Note: 2013-15 issuance. Source: Commercial Mortgage Alert, Trepp, Barclays
Research
0%
5%
10%
15%
20%
25%
30%
35%
40%
0.0
10.0
20.0
30.0
40.0
50.0
2010 2011 2012 2013 2014 2015
%$bn Bookrunner originations
Non-bookrunner originations
Non-bookrunner percent (RHS)
0%
5%
10%
15%
20%
25%
30%
35%
40%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
%$bn Bookrunner originations
Non-bookrunner originations
Non-bookrunner percent
Barclays | CMBS Strategy Weekly
29 May 2015 4
property types, in post-2013 issuance, non-bookrunners have had a larger share of multifamily properties than other sectors, but are generally well represented across the various asset classes, with at least 20% market share of the major asset classes (Figure 2).
Non-bookrunners have higher LTVs; but similar pro forma underwriting In terms of underwriting quality, there are some signs that non-bookrunner underwriting has higher leverage. Since 2012, non-bookrunners have consistently originated loans with higher underwritten LTVs than bookrunners (Figure 3). The difference has been 2-4 percentage points in the past three years and appears to be near the higher end in 2015. Another way to compare underwriting is to look for the pro forma write-up, where the underwritten NOI is significantly higher (>20%) than the trailing twelve-month NOIs. While the overall pro forma share has risen since 2013, there is no obvious pattern indicating greater use of pro forma by smaller non-bookrunner originators. Figure 4 highlights that non-bookrunners have tended to use pro forma NOIs as often as bookrunner originators in the past three years.
Non-bookrunner originators lend in more tertiary locations Another way in which smaller lenders can compete is through offering loans in more tertiary locations. Figure 5 highlights that smaller non-bookrunner originators have generally had fewer loans originated in the top ten largest MSAs than bookrunners. Properties from secondary and tertiary locations are generally more volatile, as tenants can be hard to replace and there may be fewer buyers for the property, reducing liquidity.
Smaller lender loans have experienced higher transfers to special servicing Despite a steadily growing market and stricter underwriting standards compared to pre 2009 CMBS, there have already been $831mn in loans from CMBS 2.0 that have moved into special servicing. While some of these loans have ended up being technical issues, several loans have turned delinquent and are likely to be or already have been liquidated (see $14.7mn The Hills bid to $18.1mn at auction; indicates around 14% potential severity (GSMS 11-GC5), March 25, 2015). Of the loans that have moved into special servicing, an oversized share of the loans from 2010-13 vintages has come from non-bookrunner issuance (Figure 6). For instance, in the 2013 vintage, while non-bookrunners form less than 20% of issuance, within loans that are special serviced, their share is more than 35%, indicating worse performance unadjusted for other characteristics or property type mix.
FIGURE 3 Non-managers have higher underwritten LTVs
FIGURE 4 Pro forma percentage is similar in recent years
Source: Commercial Mortgage Alert, Trepp, Barclays Research Source: Commercial Mortgage Alert, Trepp, Barclays Research
52
54
56
58
60
62
64
66
68
70
2010 2011 2012 2013 2014 2015
under-written LTV
Bookrunner Non-bookrunner
0%
2%
4%
6%
8%
10%
12%
14%
16%
2010-2011 2012 2013 2014 2015
Bookrunner originated share of collateral where U/W NOI is at least 20% higher than trailing 12m NOI
Non-bookrunner originated share of collateral where U/W NOI is at least 20% higher than trailing 12m NOI
Barclays | CMBS Strategy Weekly
29 May 2015 5
FIGURE 5 Property locations
FIGURE 6 More small lender loans have moved into special servicing
Source: Commercial Mortgage Alert, Trepp, Barclays Research Source: Commercial Mortgage Alert, Trepp, Barclays Research
Avoid deals with higher non-bookrunner concentration With some signs of weaker underwriting and worse performance among non-bookrunner originators, we would, all else equal, favor deals with a smaller share of non-bookrunner origination. This also reinforces our view of favoring seasoned BBB-s from the 2013 and earlier vintages, which generally have lower concentrations of non-bookrunner originations and are less prone to worsening underwriting. In 2014 and later vintages, we continue to recommend the single-A/double-A part of the stack, which will likely remain well protected from losses even in a severe stress scenario, while spreads in the space remain 85-100bp higher than comparably rated corporate credit bonds.
Exposure in CMBS: Texas and Oklahoma flooding Texas and Oklahoma have experienced severe storms and flooding over the past few weeks, culminating in a large flash flood in the Houston area on Monday night. On May 26, FEMA issued a Major Disaster Declaration for all counties situated in Oklahoma, while Texas Governor Greg Abbott issued an Emergency Disaster Proclamation on May 11, 2015 for various counties in Texas, and later added additional counties to that list. We take a look at the CMBS exposure pertaining to the flooding in these two states and base our analysis on the county lists mentioned above.
In total, $23bn CMBS appears to be exposed in these two states, with Texas having approximately $19bn of the total balance, while Oklahoma has $4bn (Figure 7). $17bn of the loans are conduits, while the rest are primarily agency CMBS loans. While agency CMBS loans are backed by guarantees, involuntary prepayments can result in losses for bonds trading at premiums, and any losses could affect Freddie K mezzanine tranche subordination as well.
FIGURE 7 Total exposure in CMBS
Texas Oklahoma Total
Conduit 14,935,611,429 2,122,358,505 17,057,969,935
Agency 2,945,220,964 1,869,534,686 4,814,755,650
SASB 1,050,000,000 - 1,050,000,000
Total 18,930,832,393 3,991,893,191 22,922,725,584 Source: Trepp, Barclays Research
0%
5%
10%
15%
20%
25%
30%
35%
2012 2013 2014 2015
%Bookrunner % of originations in top 10 MSAs
Non-bookrunner % of originations in top 10 MSAs
0%
5%
10%
15%
20%
25%
30%
35%
40%
2010 2011 2012 2013
% % of loans transferred to special servicing from non-bookrunner loans
Non-bookrunner percent of issuance
Barclays | CMBS Strategy Weekly
29 May 2015 6
Texas/Oklahoma flooding has large exposure for CMBS, but the effect may be minimal For Texas, where a total of 46 counties were included in the governor’s Emergency Disaster Proclamation, the flooded counties capture a large number of CMBS loans, including the city of Houston. For conduit, a total of $14.9bn loans have some exposure to the flooded counties. However, it is likely that many of these assets were not affected by the flooding, which often impacts only localized areas within the damaged counties, often based on areas subject to flooding and localized downpours.
The only single-asset and single-borrower loan affected in Texas was the Houston Galleria, recently securitized in the $1.05bn HGMT 2015-HGLR, where a parking garage appears to have been damaged by the flooding, according to NBCNews.com, but the mall has remained open and we do not expect cash flow issues to cause concern for the debt service for the large loan at this time.
One area particularly hard hit in Texas included the towns of Wimberley and San Marcos in central Texas after the Blanco River experienced record flooding. While Wimberley had no CMBS exposure, about $314mn in loans in San Marcos are in CMBS, a college town with a significant amount of student housing. We list the exposure in the town in Figure 8; however, we do not know which, if any, of these properties may have been subject to flooding, nor the extent of the damage.
As we pointed out in CMBS Strategy Weekly: Limited impact of Hurricane Sandy on CMBS, November 2, 2012, property defaults due to flooding have historically been low, even in the face of large disasters. We expect most of the properties to be protected by flood insurance should a property be located in a pre-defined flood zone, as well as business interruption insurance for many properties. While some properties may be underinsured, it is still often in the owners’ best interest to repair a property and not default on a mortgage. Ultimately, it is possible the flooding could trigger a few defaults of smaller properties, where owners may not have the reserves to handle cash flow interruptions and may be underinsured.
FIGURE 8 CMBS loans in San Marcos, Texas
Loan Deal Deal Type Property Type Address Loan Balance
Cottages Of San Marcos FREMF 2015-KKA Agency CMBS Student 1415 Craddock Avenue 47,427,000
Aspen San Marcos CSAIL 2015-C1 Conduit Student Housing 1980 Aquarena Springs Drive 33,600,000
Purgatory Creek Apartments WFCM 2014-LC16 Conduit Garden 1951 Hunter Road 31,600,000
Aspen Heights FREMF 2012-K19 Agency CMBS Student 201 Telluride Street 26,932,961
Autumn Chase Apartments COMM 2015-DC1 Conduit Garden 1606 IH 35 Frontage Road 17,500,000
San Mar Plaza Shopping Center JPMCC 2007-CB19 Conduit Anchored 901-935 Highway 80 16,084,078
University Heights II Student Housing MSC 2006-IQ12 Conduit Student Housing 1101 East River Ridge Parkway 15,772,287
Villagio Apartments CSMC 2007-C2 Conduit Conventional 1850 Aquarena Springs Drive 15,298,565
Hillside Ranch Apartments BACM 2005-6 Conduit Garden 1350 North LBJ Drive 12,701,278
Dakota Ranch Apartments WBCMT 2006-C23 Conduit Conventional 1818 Ranch Road 12 10,628,237
Savannah Club Apartments JPMCC 2006-CB15 Conduit Garden 250 South Stagecoach Trail 9,162,621
University Springs Apartments BACM 2006-1 Conduit Student 109 West Avenue 8,965,339
Park Hill Apartments FNA 2012-M8 Agency CMBS Multifamily 1001 Leah Avenue 8,773,274
Cedars of San Marcos LBUBS 2007-C7 Conduit Garden 1101 Leah Avenue 7,014,819
Hampton Inn - San Marcos MLCFC 2007-6 Conduit Limited Service 106 Interstate 35 North 6,827,896
Treehouse Apartments GSMS 2013-GC10 Conduit Student Housing 800 North LBJ Drive 6,355,626
University Club Apartments GSMS 2006-GG8 Conduit Student Housing 1441 Leah Avenue 6,315,195
Barclays | CMBS Strategy Weekly
29 May 2015 7
Loan Deal Deal Type Property Type Address Loan Balance
Country Oaks Apartments FNA 2011-M9 Agency CMBS Multifamily (blank) 5,055,577
Metropolitan Apartments LBUBS 2006-C3 Conduit (blank) 121 Craddock Avenue 4,578,237
HILL COUNTRY APARTMENTS FNA 2012-M15 Agency CMBS Dedicated Student 1230 N LBJ Drive 3,718,880
Summit Apartments - San Marcos, TX BACM 2007-5 Conduit Student Housing 1348 Thorpe Lane 3,574,222
Crescent Oaks Apartments JPMBB 2015-C28 Conduit Garden 518 Linda Drive 3,191,795
Englebrook Apartments FNA 2013-M3 Agency CMBS Multifamily 200 Robbie Lane 2,856,401
Bishops Square FNA 2012-M7 Agency CMBS Dedicated Student 109 Craddock Avenue 2,836,866
San Marcos MHP CSMC 2006-C1 Conduit Manufactured Housing 1005 River Road 2,358,203
Village Green Apartments FNA 2013-M14 Agency CMBS Multifamily 201 First Street 2,208,443
(blank) FNA 2010-M7 Agency CMBS Multifamily (blank) 1,966,054
San Marcos Plaza BSCMS 2005-PWR9 Conduit Shadow Anchored 1023 Highway 80 1,257,378
Source: Trepp, Barclays Live
Federal Reserve Board’s proposal on adding municipal bonds to high-quality liquid assets (HQLA) On May 21, 2015, the Federal Reserve Board made a proposal to add US municipal bonds to category 2B assets under the Liquidity Coverage Ratio (LCR) requirements. The proposal is based on similar liquidity characteristics shared by municipal bonds with investment grade corporate bonds and other HQLA asset classes.
Under the proposal, investment grade municipal bonds would be counted as HQLA up to a certain level if they meet the same liquidity criteria that are currently applied to Level 2b securities, as this ensures compatibility across all Level 2b assets. In addition, a holding limit similar to those mentioned previously will be applied to municipal bonds. Lastly, it is proposed that a single entity cannot account for more than 25% of the total outstanding securities on the market by the same CUSIP as HQLA, and this is applied before the 50% haircut for Level 2b assets.
Implications for agency CMBS The addition of municipals bonds for the LCR could take away some marginal demand for agency CMBS, as more options can be used to meet the LCR. However, the effect would likely be minimal, since GNMA-backed securities are Level 1 LCR assets and Freddie Mac/Fannie Mae securities are Level 2a, while municipal bonds would be Level 2b assets. There remains some uncertainty as to whether GNMA project loan REMICs meet the liquidity requirements for the LCR rules (CMBS Strategy Weekly: NAIC assumptions and LCR regulation updates, September 15, 2014).
While this new proposed rule has no direct bearing on LCR for agency CMBS, some of the conditions for holding limits that are proposed give some insight into possible tests that may be applied on other asset classes, at least informally. However, it is possible that GNMA PL bonds, which carry the full-faith-and-credit guarantee of the US government, will continue to be treated differently. As a reminder, the discussion released when the LCR criteria were finalized characterized GNMA bonds as having the same credit and liquidity risk as Treasury bonds (see the September 15, 2014, link above for details).
Barclays | CMBS Strategy Weekly
29 May 2015 8
APPENDIX: SPREAD MONITOR
Fixed-rate conduit/fusion over swaps (bp)
New issue CMBS 3.0 credit curve (bar shows T-6M min/max spreads)
Category 5/28 1 wk chg
6-month
0
50
100
150
200
250
300
350
400
5yr AAA LCF AM AA A BBB-
Avg. High Low
2007
AAA LCF 98 2 97 105 92
AM 158 2 156 165 142 AJ 511 3 507 521 488
2006
AAA LCF 90 2 89 97 83 AM 118 2 116 125 102 AJ 299 2 297 307 282
2005
AAA LCF 97 2 96 104 88 AM 90 0 91 97 72 AJ 154 0 155 162 137
CMBS 3.0 spreads
Rating 5/28 1-wk. chg.
6-month
Rating 5/28 1-wk. chg.
6-month
Avg. High Low Avg. High Low
2015 5y 59 2 59 66 53 2013 5y 55 2 55 62 49 2015 LCF 88 2 87 94 82 2013 LCF 79 2 79 86 73 2015 AS 123 2 119 124 115 2013 AS 111 2 109 116 103 2015 AA 156 3 154 165 146 2013 AA 130 3 130 142 120 2015 A 210 3 206 215 198 2013 A 186 3 185 198 176
2015 BBB- 341 3 340 354 328 2013 BBB- 314 3 315 332 301
2014 5y 59 2 59 66 53 2012 5y 48 2 48 55 42
2014 LCF 87 2 86 94 81 2012 LCF 73 2 73 80 67 2014 AS 119 2 116 124 111 2012 AS 100 2 98 105 92 2014 AA 151 3 151 165 141 2012 AA 123 3 122 133 113 2014 A 198 3 198 212 188 2012 A 176 3 175 186 166
2014 BBB- 336 3 337 354 323 2012 BBB- 268 2 269 283 258
Spread comparison versus benchmark sectors
Agency debentures Fixed-rate ABS
Term Libor OAS
CMBS 2.0 AAA spread pick-up (bp)
Category Avg. life
Spread (Libor)
CMBS 2.0 spread pick-up (bp)
28-May 21-May 6-mo. avg.
28-May 21-May 6-mo. avg.
5y 8 51 49 50 Cr. Cards – AAA 5 yr. 57 2 0 2
10y 6 82 80 81
Credit MBS
Spread (Tsy)
CMBS IG index (bp) spread pick up
OAD Libor OAS
CMBS 2.0 AAA spread pick-up (bp)
28-May 21-May 6-mo. avg.
28-May 21-May 6-mo. avg.
Credit index 136 16 16 16 Current Coupon 6.9 30 29 27 29
Industrials 140 12 12 12
Financials 144 8 8 8
CDX.IG.OTR* 122 7 5 6 Note: *Protection Premium. Agency, ABS, and MBS are compared against similar-term CMBS 2.0 spreads. Source for all tables on this page: Trepp, Barclays Research
Barclays | CMBS Strategy Weekly
29 May 2015 9
AGENCY CMBS
Agency CMBS spreads are now available on Barclays Live, Keyword Chart.
Agency CMBS Spreads Spreads over time
Cate-gory Bond 5/28
4 wk chg
0
20
40
60
80
100
120
140
160
Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14
10yr Freddie KDUS10yr Ginnie
1 wk chg
Fred
die
K se
ries
5yr A1 30 0 0 7yr A2 32 -2 2
10yr A2 45 0 0 IO (X1) 140 0 5
B 155 0 10
C 205 -5 5
Fann
ie
DU
S
DUS 57 2 -2
Gin
nie
Pro
ject
Loa
n Re
mic
3yr 85 -5 -15
5yr 120 -5 -30
10yr 125 -5 0
Z 120 -5 0 IO 200 5 15
Spread comparison versus agency RMBS
Freddie K series vs Agency RMBS PAC Fannie DUS vs Agency RMBS PAC
RMBS Spread Libor OAS
Freddie AAA spread pick-up vs OAS (bp)
RMBS Spread Libor OAS
Fannie DUS spread pick-up vs OAS(bp)
5/28 5/21 5/28 5/21
5y PAC 75 25 5 10 10yr PAC 85 35 22 25
7y PAC 80 30 2 9
10y PAC 85 35 10 15
Ginnie SEQ vs Agency RMBS SEQ*
RMBS Spread Libor OAS
Ginnie spread pickup vs OAS spread (bp)
5/28 5/21
3yr SEQ 60 -1 86 91
5yr SEQ 70 5 115 120
10yr SEQ 80 10 115 120
Z 110 40 80 90
Note: *GNR spreads assume 15 CPJ pricing convention. Closest available term agency PAC/spread used for comparison. Source for all tables on this page: Barclays Research
Barclays | CMBS Strategy Weekly
29 May 2015 10
THE SYNTHETIC SUPPLEMENT
CMBX spread performance
CMBX.6-8 CMBX.1-5
Rating 5/28 1-wk. chg.
6-month
Rating 5/28 1-wk. chg.
6-month
Avg. High Low Avg. High Low AAA.8 94 1 92 94 90 AAA.5 56 0 62 79 53 AS.8 122 3 118 122 117 AM.5 191 0 215 239 186 AA.8 164 5 159 164 156 AJ.5 839 3 805 865 707 A.8 218 2 215 218 212 AAA.4 45 -1 51 73 42
BBB-.8 362 3 359 363 355 AM.4 148 -5 182 229 148 BB.8 581 3 578 584 575 AJ.4 1031 -3 951 1038 799
AAA.3 35 1 43 68 31 AAA.7 81 2 84 94 78 AM.3 124 -4 164 218 123 AS.7 111 3 114 125 100 AJ.3 1223 -17 1110 1249 943 AA.7 148 3 147 160 140 AAA.2 28 0 37 68 24 A.7 196 1 193 203 182 AM.2 82 -7 107 148 76
BBB-.7 314 3 315 342 299 AJ.2 829 6 681 830 539 BB.7 516 2 516 545 487 AAA.1 22 -1 32 76 16
AM.1 47 -3 67 114 39 AAA.6 70 3 75 85 67 AJ.1 341 -9 328 390 251 AS.6 100 2 106 117 96 AA.6 134 2 137 150 129 A.6 180 1 181 195 171
BBB-.6 284 2 285 308 269 BB.6 487 2 483 507 455
Source: Barclays Research
DTCC : CMBX Net Long Protection for Dealers (Notional, $mn) CMBX.AAA Net Long Protection for Dealers (Notional, $bn)
Rating 5/22/15 5/15/15
6-month
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Apr-13 Aug-13 Dec-13 Mar-14 Jul-14 Nov-14 Mar-15
AAA. 1-5 AAA. 6
AAA. 7 AAA.8
Avg. High Low AAA 2422 2422 1565 2734 -271 AM -3 -3 -37 58 -114 AJ 241 249 195 289 77 AA -99 -89 39 205 -99 A 201 200 59 201 -57
BBB -76 -76 -197 -66 -397
AAA.6 572 572 1029 1796 140 AS.6 -21 -21 -199 4 -378 AA.6 269 294 179 315 -3 A.6 114 134 -2 134 -137
BBB-.6 276 276 163 420 -94 BB.6 226 246 158 404 16
AAA.7 2076 2126 1197 2126 -151 AS.7 -11 -11 -28 45 -117 AA.7 44 19 0 128 -141 A.7 -85 -125 -113 -16 -264
BBB-.7 522 542 404 666 66 BB.7 10 35 67 208 -126
AAA.8 781 728 339 781 137 AS.8 30 10 6 30 0 AA.8 20 20 21 35 0 A.8 7 12 12 41 -4
BBB-.8 -75 -91 -53 15 -114 BB.8 14 14 -8 14 -26
Source: DTCC, Barclays Research
Barclays | CMBS Strategy Weekly
29 May 2015 11
TRADING VOLUME UPDATE
TRACE reported volumes
5/22 - 5/28 5/15 - 5/21 6m Average
CMBS P&I
Total Volume Traded (Notional) 2,476,002,000 6,676,043,700 5,144,005,082
Total Volume Traded (Market Value) 2,502,107,176 6,461,875,905 5,076,348,008
Customer Sell (Notional) 1,245,849,300 3,142,775,100 2,199,073,454
Customer Buy (Notional) 1,064,154,400 3,190,017,900 2,527,916,764
Net Customer Buy (Notional) -181,694,900 47,242,800 328,843,311
IG% of Volume 59% 56% 61%
Avg IG Price 103.8 103.6 104.0
CMBS IO
Total Volume Traded (Notional) 3,066,626,500 3,532,297,200 4,606,651,586
Total Volume Traded (Market Value) 128,823,709 110,321,023 226,961,560
Customer Sell (Notional) 1,321,437,200 1,329,140,000 1,073,642,736
Customer Buy (Notional) 606,923,200 1,872,807,900 1,598,533,904
Net Customer Buy (Notional) -714,514,000 543,667,900 524,891,168
Source: FINRA, Barclays Research
Bid list activity (cash market)*
Time Period Notnl. ($mn)
Breakdown by type of security (%)
AAA
Mezz.
CMBS 2.0 Single
Borrower Agency Others Snr. AM AJ AAA/AJ Mezz.
May 22 - May 28 1,421 22 9 7 4 10 10 3 34 1 Weekly avg. (6-mo.) 1,277 24 5 5 10 22 6 8 22 2
Bid list activity broken out by seller
Time period Notional ($mn)
Breakdown by type of seller (%)*
Money Mgr. Ins. Co. Hedge Other
May 22 - May 28 1,421 58 9 11 18
Weekly avg. (6-mo.) 1,277 58 13 13 19
Source: Barclays Research Note: This represents all the CMBS bid lists that Barclays saw in the past week, not necessarily all securities traded. Source for all tables on this page: Barclays Research
Barclays | CMBS Strategy Weekly
29 May 2015 12
CMBS NEW ISSUANCE SUMMARY
Source: Commercial Mortgage Alert, Barclays Research
2013 and 2014 monthly issuance
0
2
4
6
8
10
12
14
0
20
40
60
80
100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$bn$bn 2014 Conduit/Single-Borrower/Floating-Rate issuance (RHS)2015 Conduit/Single-Borrower/Floating-Rate issuance (RHS)Cumulative 2014 issuanceCumulative 2015 issuance
Note: Cumulative only includes conduit, single-borrower, and floating-rate issuance. Source: Commercial Mortgage Alert, Barclays Research
Month Conduit Floating-Rate
Fusion Single-
Borrower REO Rental Agency Seasoned/
Subordinate Liquidation
Vehicle Total 2015 Cum.*
January $3,765 $466 $900 $1,100 $4,691 $0 $0 $10,921 $10,921
February $5,029 $346 $6,569 $553 $5,308 $0 $0 $17,805 $28,727
March $4,387 $545 $4,963 $637 $3,676 $0 $113 $14,320 $43,047
April $4,324 $0 $3,972 $381 $5,376 $210 $0 $14,261 $57,308
May $5,459 $181 $1,391 $674 $4,639 $0 $0 $12,344 $69,652
June
July
August
September
October
November
December
2015 Total $22,964 $1,538 $17,794 $3,344 $23,690 $210 $113 $69,652 2014 Total $57,128 $7,525 $24,485 $5,627 $53,547 $278 $873 $149,464
2013 Total $53,074 $1,464 $24,538 $479 $66,381 $343 $757 $147,037
2012 Total $32,165 $1,560 $9,839 $0 $52,421 $0 $668 $96,653
2011 Total $25,067 $1,403 $2,676 $0 $35,088 $0 $0 $64,234
2010 Total $6,918 $0 $6,939 $0 $26,757 $1,021 $0 $41,635
2009 Total $0 $0 $2,089 $0 $8,055 $0 $0 $10,223
2008 Total $10,708 $1,438 $0 $0 $3,674 $0 $0 $15,398
2007 Total $189,298 $20,865 $13,548 $0 $3,166 $4,122 $0 $233,365
2006 Total $162,813 $27,128 $10,857 N/A $7,452 $860 $0 $209,111
2005 Total $136,224 $19,688 $11,170 N/A $4,625 $2,088 $0 $173,794
2004 Total $74,064 $13,093 $5,672 N/A $6,220 $285 $0 $99,334
2003 Total $52,885 $14,551 $7,776 N/A $8,347 $2,637 N/A $86,195.2
Barclays | CMBS Strategy Weekly
29 May 2015 13
RESEARCH CATALOG Please see Barclays Live, keyword= CMBSPUB for the complete list of past publications
Outlooks and Primers
CMBS Outlook 2015: Testing the rebound
A guide to bond selection in new issue IOs
Introducing Barclays CMBS Credit Model
A guide to single-borrower deals
Outlook for cap rates
Navigating CMBS remittance reports
Scaling the maturity wall
Agency CMBS: A Primer
Interest shortfalls: A Primer
Remittance Updates
CMBS Credit Handbook - May remits
Agency CMBS Handbook - May
Recent Highlighted Publications
CMBS Focus: CMBS Sector Overview: Retail 4/17/15
CMBS Focus: CMBS Sector Overview: Office 3/13/15
S&P banned from rating new CMBS conduits for one year; minimal effect on CMBS market
1/21/15
Final Credit Risk Retention Rules released 10/22/14
Improving CRE market to have steady but modest growth into 2015
10/10/14
Some hope for hope notes? 9/5/14
$620mn of CMBS exposed to Napa, California, earthquake; effect likely limited
8/25/14
How far has 2014 new issue quality slipped? 7/18/14
Nearly $500mn in auctions this summer 6/27/14
Agency CMBS rallies as Agg inclusion nears 6/20/14
First look at 3.0 delinquencies 5/30/14
More CWCap auctions on the way 5/23/14
What drives early prepayments? 5/9/14
The question of coterminous leases 4/25/14
Nearly $200mn in auctions set for May and June 4/21/14
Tracking delinquent loan cash flows 4/11/14
An early look at YE 13 financials 4/4/14
How predictive are reported appraisals? 3/21/14
More details on the Crapo-Johnson proposal for agency CMBS
3/17/14
Final Credit Risk Retention Rules released 10/22/14
Loan level Intradays
$39mn The Mill moves into special servicing as Connecticut offices continue to struggle (LD11) 5/15 GG9 sees $242mn liquidated at 57% severity and no B-note recoveries for Schron Industrial Portfolio payoff ($220mn/$85mn) 5/12 CMBS: 2.0 $96mn Ty Warner Hotels & Resorts Portfolio transferred to special serving (MSC 12-C4) 5/5 $200mn NGP Rubicon GSA Pool (WBCMT 05-C20/C21) and $57mn Scottsdale Plaza Resort (CB15) move into special servicing 4/29 2.0 $50mn Hudson Valley Mall moves into special servicing after JCP closes (CFCRE 2011-C1) 4/17 $320mn in CMBS out for auction in late April and May, $62mn exposure in WBCMT 2006-C24 4/16 $375mn modified The Belnord pays off with 1.3% loss; should reduce future AJ shortfalls (LDP9) 4/15 $77.6mn in auction liquidations hit MLCFC 2007-7 at 46% severity, AJ credit support nearly gone 4/14 MLCFC 2006-4 sees large principal cash flows after Park La Brea prepayment ($775m, MLCFC 06-4/LDP8) and $123mn of liquidations (49% severity) 4/13 $68.8mn Indian River Mall & Commons receives $39mn appraisal (BACM 05-1) 4/13 $83mn Fiesta Mall receives updated appraisal at just $8mn (BACM 2005-3) 4/10 Sears REIT plan could lead to closures in H2 15 4/1 $38.5mn Eastland Mall sold for $9.25mn at auction for an 81% severity (LBUBS 07-C1) 3/26 $14.7mn The Hills bid to $18.1mn at auction; indicates around 14% potential severity (GSMS 11-GC5) 3/25 $62mn 50 Danbury Road and $7mn 64 Danbury Road move into special servicing (LBCMT 2007-C3) 3/18 $83mn REPM portfolio moves into special servicing (JPMCC 2006-CB16) 3/18 $775mn Willis Tower (Sears Tower) sold for $1.3bn to Blackstone; could be defeased (LBUBS 07-C2, 07-C7, 08-C1, JPMCC 13-WT) 3/17 $133mn Galleria at Pittsburgh Mills moves into special servicing near maturity after losing Sears (MSC 2007-HQ11) 3/12 $300mn/$80mn AB modified Columbia Center out for sale (MSC 2007-HQ12) 3/12 $190mn Pickwick Plaza pays off with 1% loss (GG9) 3/12 $154mn Ridgedale Center payoff workout fee leads to large AM shortfall (BACM 2005-3) 3/10 $570mn out for auction in March and April, including first REO CMBS 2.0 loan 3/6 $116mn 1818 Market Street moves into special servicing due to tenant-in-common bankruptcy (WBCMT 06-C24) 2/18 $Hope note-modified $72mn/28mn Park 80 West pays off with 100% B note loss (LBUBS 05-C2) 2/18 $200mn Pickwick Plaza receives rate reduction modification; open to prepayment with conditions and Hawaiian Retail portfolio ($46.5mn/$16.5mn) pays off with 100% B-note loss (GG9) 2/12 Update: $53mn National Envelope receives $35mn appraisal; takes first ASER Shortfall (GECMC 07-C1) 2/11 $53mn National Envelope receives $35mn appraisal; takes first ASER Shortfall (GECMC 07-C1) 2/10 $3.2bn+ exposed to RadioShack potential bankruptcy, but only $33mn has >20% exposure 2/4 $417mn in CMBS out for auction in February and March, GG9 and MLCFC 07-7 have the largest exposure 2/3
Barclays | CMBS Strategy Weekly
29 May 2015 14
US SECURITIZATION STRATEGY ANALYSTS
Ajay Rajadhyaksha Co-Head of FICC Research +1 212 412 7669 [email protected] BCI, US
Sandeep Bordia Head of Securitized Products Research +1 212 412 2099 [email protected] BCI, US
Jasraj P. Vaidya Head of US Residential Credit/CMBS Strategy +1 212 412 2265 [email protected] BCI, US
Sandipan Deb Agency MBS Strategy +1 212 412 2099 [email protected] BCI, US
Aaron Haan US Residential Credit/CMBS Strategy +1 212 412 2099 [email protected] BCI, US
Anuj Jain Agency MBS Strategy +1 212 412 2099 [email protected] BCI, US
Brian Ford, CFA Esoterics/Consumer ABS Research +1 212 412 6701 [email protected] BCI, US
Dennis Lee Agency MBS Strategy +1 212 412 2099 [email protected] BCI, US
Leo Wang Agency MBS Strategy +1 212 412 7571 [email protected] BCI, US
Mengbai Wang CMBS Strategy +1 212 412 2099 [email protected] BCI, US
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