04/06/2012

After Slow Quarter, CMBS Volume to Pick Up

Commercial MBS issuance in the U.S. got off to a slow start in the first quarter, but activity is expected to step up in coming months.

Only $6 billion of paper priced from January through March, down 32% from a year earlier and virtually flat with the fourth quarter. The depressed issuance reflected the slowdown in originations in the second half of last year because of fallout from the European debt crisis and fears of a potential double dip in the U.S. economy (see volume totals and underwriter rankings on Pages 24-29).

Volume is now on pace to reach just $24 billion this year — well below the $38 billion forecast by a panel of bond pros. But lending by securitization programs picked up in the first quarter as CMBS spreads tightened. That will accelerate activity in the second and third quarters, although it’s too soon to say whether the $38 billion prediction can be achieved.

All told, 11 private-label U.S. transactions priced in the first three months — four multi-borrower deals, three single-borrower offerings and the junior portions of four Freddie Mac issues.

Deutsche Bank has jumped out to an early lead in the ranking of CMBS bookrunners in the U.S. Deutsche, which won the league table last year, served as bookrunner on $1.7 billion of transactions, or 29% of total issuance. Next came Wells Fargo ($905.5 million), Bank of America ($807.2 million), Morgan Stanley ($646 million) and Goldman Sachs ($633.7 million). J.P. Morgan, which finished second in the full-year 2011 ranking, slipped to seventh place, with $221.5 million of volume.

Deutsche also took the lead in the ranking of loan contributors to U.S. securitizations. Deutsche supplied $1 billion of mortgages to the collateral pools of deals, including a $625 million loan to developer Sheldon Solow on the office building at Nine West 57th Street in Midtown Manhattan. That mortgage was securitized in a stand-alone transaction.

Morgan Stanley ranked second, with $817.7 million of loan contributions, followed by Goldman ($528.3 million), Citigroup ($520.4 million) and Wells ($506.1 million). J.P. Morgan, which won the ranking last year, had no loan contributions in the first quarter. But it has a $1.3 billion multi-borrower transaction in the works with Ladder Capital.

The loan-contributor ranking tracks the “principal” business of lenders in the CMBS market — that is, the degree to which firms put their own capital at risk by amassing loans for securitization. It counts collateral loans originated with the intent of securitization and warehoused in advance of an actual CMBS deal. Eighty percent of first-quarter issuance fell into that category.

Activity outside of the U.S. remained virtually dormant, with just two deals totaling $1 billion, down from $1.3 billion of volume in the year-earlier quarter. That pushed global issuance to $7 billion. Given the minimal non-U.S. activity, the global CMBS bookrunner ranking closely mirrored the U.S. league table. One exception: Goldman, which received credit for one non-U.S. transaction, finished in third place, two notches higher than in the U.S. ranking.

RBS captured first place in a separate ranking that gives full credit to all members of underwriting syndicates on global CMBS offerings. RBS served as an underwriter on $3.7 billion of transactions, meaning that it had a hand in 53% of global issuance. Next came Morgan Stanley ($2.9 billion) and Wells ($2.7 billion).

The issuance of agency CMBS set a quarterly record of $11.3 billion, exceeding the $9.4 billion mark recorded in the fourth quarter of 2010 and almost doubling the private-label issuance in this year’s first quarter. The activity reflects the dominant role that Fannie Mae, Freddie and Ginnie Mae are playing in multi-family financing. Issuance rose 23%, from $9.2 billion in last year’s first quarter. There were 21 agency transactions — 12 via Ginnie, five via Fannie and four via Freddie.

Defending champ Credit Suisse was the most-active bookrunner of agency CMBS in the quarter, with $2.8 billion of volume, or a 25% market share. Following were Wells ($2.1 billion), Morgan Stanley ($1.3 billion), J.P. Morgan ($1.2 billion), Barclays ($1.05 billion) and Jefferies & Co. ($1.04 billion).

There was no CDO/resecuritization volume in the quarter.

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