CMBS Spreads Hold Steady on Investor Uncertainty
Commercial mortgage-backed securities (CMBS) spreads remained largely unchanged on Thursday despite the rally seen earlier this week. That credit bonds held steady "should be seen as a net positive," according to market commentary by Manus Clancy, managing director of CMBS and commercial mortgage information provider Trepp. Performance of collateral underlying CMBS bonds did not look positive Thursday, however, with two large loans in the Cincinnati market moving to special servicing. The $144m Tri-County Mall loan, which represents 9.6% of an '05-vintage Credit Suisse deal, moved to the special servicer. The $75m Northgate Mall loan, which represents 9.3% of an '03-vintage Credit Suisse deal, also moved to the special servicer. The property faces the loss of Dillard's as "an anchor," Clancy said, adding that the "ominous" note on the remittance report describes a 78% occupancy rate. "Dillard's owns its parcel, so it does not qualify as collateral for the loan - but the loss of a major anchor cannot be good news for the space," Clancy said. Despite new tax rules that may increase the occurrence of modification within CMBS, investors may remain hesitant, according to a Barclays Capital securitization research report Friday. Rules issued this week by the International Revenue Service (IRS) and US Treasury Department lift tax penalties for certain cases of commercial mortgage modification within securities. "The ruling potentially opens the door for many recent vintage borrowers to pursue loan modifications well before the stated maturity of a loan, even if such loan is performing," Barclays Capital noted. The firm added: "However, it should raise some uncertainty for CMBS investors with a potentially differing effect across the capital structure. Also, it places a greater burden on special servicers to uphold the servicing standard and maximize proceeds to the entire trust, and on investors to monitor such actions." Investor interest remains muted in the Term Asset-Backed Securities Loan Facility (TALF), which aims to encourage investment in certain ABS through the help of government loans. The Federal Reserve Bank of New York on Thursday received requests for $1.4bn of loans to purchase legacy CMBS, down from $2.3bn of requests in August. Thursday's facility offered fixed 3-year loans at 2.94% and fixed 5-year loans at 3.79%. It received no bids for new CMBS issuance, indicating the program may have a minimal impact on the credit-tight market, according to Real Estate Econometrics, an analytics firm that tracks data from banks and Federal Deposit Insurance Corp.-insured institutions. "Consistent with our assessments of the TALF program to date, today's results suggest that the expansion of TALF to CMBS will have a limited impact on liquidity and the availability of credit in the near-term," Real Estate Econometrics said in market commentary. The firm added: "While new CMBS deals are anticipated as soon as October, we do not expect that the volume of securitization activity in the fourth quarter will itself result in a material change in broader commercial real estate market conditions." Write to Diana Golobay.