• CAPSULE DDD SUMMARY: Philly Riding A “Wave of Optimism” in 2017 2 years ago

    Yesterday I presented an update on the Phase I ESA market at our Philadelphia DDD event, just days away from the end of the first quarter. On a national level, market barometers paint a promising near-term forecast for commercial …

    The post CAPSULE DDD SUMMARY: Philly Riding A “Wave of Optimism” in 2017 appeared first on EDRnet.

  • Strong Renewables Raise Bearish Flag for California NatGas in Spring and Summer 2017 2 years ago

    A majority of the signals for California gas this summer are bearish, largely due to the growth of renewables, although there are a few bullish offsetting factors such as SoCal’s continued storage issues and growth in upstream demand.

    An abundance of cheap hydropower will only continue to flood the West Coast power markets in the coming months. Genscape anticipates above-normal levels of precipitation across the West Coast stretching from central California to northern Washington. Based on this forecast and with current snowpack levels already well above normal, Genscape expects strong, potentially record-breaking, hydro generation in California and the Pacific Northwest through the spring and early summer. With this cheap power available to meet baseload, natural gas plants throughout the Western Interconnection that typically run around the clock will likely be priced out with increasing frequency. However, natural gas peakers will continue to be relied on to provide additional power during times of peak demand.

    Solar generation capacity, both utility-scale and behind-the-meter, continues to grow throughout California. Due to recent additions, utility-scale capacity now exceeds 10GW while behind-the-meter nears 5GW. The added solar capacity impacts power prices not only in California, but throughout the entire Western Interconnection. In an area stretching from Wyoming to Arizona, it is now becoming commonplace for power prices to fall into negative territory during peak solar hours. The California ISO will likely be curtailing solar generation with increasing frequency due to limitations on the transmission system and in order to maintain grid stability. However, Genscape expects that many natural gas units will have to cycle off during the midday due to loading orders and the fact that it is simply not as economical for gas plants to run through such weak pricing.

    California wind generation is also expected to be strong this spring, running about ten percent above normal. Unlike solar generation, this will be a product of weather rather than capacity additions. Genscape meteorologists expect more low pressure systems than normal to move through the California footprint during the spring, providing the state with additional cheap energy, particularly in the morning and evening hours when wind generation is strongest. 

    Genscape is currently seeing conditions for El Niño Southern Oscillation (ENSO) to transition from neutral status to El Niño status by late spring. While normal temperatures are expected in California and the Southwest, slightly above-normal temperatures are expected in the Pacific Northwest. Based on current forecasts, Genscape sees little upside risk to power demand in the coming months.

    There are, however, some bullish supports for gas. SoCal’s Aliso Canyon situation remains ongoing, with the facility still unavailable for injections and only used for withdrawals in emergencies. The pipeline is also conducting extensive modifications to its other three storage facilities, which has decreased storage operating capacity since the beginning of March. The long-term outlook is mixed. These modifications, which include changing from tubing-plus-casing injections and withdrawals to tubing-only, will translate to decreased daily transaction capacity. However, this work also represents a significant investment in SoCal’s storage infrastructure, and is intended to reduce the risk of another Aliso-like leak event. With the continued concerns surrounding storage, SoCal’s dependence on imports remains elevated.

    Growing upstream natural gas demand in the Desert Southwest and Mexico could also present a bullish counter to the bearish California renewables situation. 

    On the Mexico front, the country is in the midst of a massive restructuring that will allow greater non-governmental market participation. This is being done to help support growing demand, increase supply diversity, and offset declining Mexican oil and gas production. As a result, Mexican imports of U.S. natural gas, particularly from the same West Texas sources that partly feed California, have been rising. Three new U.S. export capacity projects have recently come online, allowing Mexico even greater access to the U.S. supply. Increasing capacity for exports to Mexico has the potential to siphon off gas from the Southwest before it reaches the Golden State, meaning that California’s prices may feel increased upward pressure to compete with Mexican demand.

    Within the U.S. Desert Southwest, natural gas-fired generation has also been growing in correlation with declines in coal-fired generation. For example, El Paso pipeline serves the most demand in Arizona, and its weather-normalized deliveries have grown substantially over the past three years. This growth is part of a larger trend of increased natural gas-fired generation in Arizona. In 2016, gas passed coal as the largest generation source for the state. Concerns about the potential retirement of the 2250 MW Navajo plant in northern Arizona by the end of the year also exemplify this trend.

    A moderately eventful nuclear refueling season could also represent another bullish factor for California’s gas outlook. Month-long maintenance events are planned for three large western nuke plants this spring: Arizona’s Palo Verde 2 begins its turnaround in early April, California’s Diablo Canyon 1 at the end of April, and Washington’s Columbia Generating Station begins in mid-May. All have nameplate capacities in the 1100-1350 MW range, meaning that their absence creates the potential for replacement gas burn up to 175-215 MMcf/d in each case.

    Genscape's insight into the West Coast power and natural gas markets shares increased transparency into capacities, flows, and utilization. Genscape's Power Market Services provide near-real time, proprietary monitoring data, price and congestion forecasts, and analytics software solutions that helps clients with making more informed production and trading decisions. This comprehensive and reliable intelligence is also carried across Genscape's Natural Gas Services. These services are provided by experienced traders and analysts who understand and anticipate client needs, delivering unique insights to market participants. To learn more, or to request a trial of Genscape's Natural Gas Services, please click here.

  • New Fertilizer Production Facilities Are Impacting U.S. Urea Supply, is the Market Adjusting? 2 years ago

    New fertilizer production in the United States has changed the fertilizer supply story, reducing the need for imports as domestic production increases. The question is, what has been the response of the market? February 2017 saw more urea imported than in the last ten years, according to Genscape’s import estimates powered by our proprietary Vesseltracker™-based geospatial database and confirmation from our daily U.S. Customs data feed (Figure 1). This rise could be a result of slower-than-normal imports during the fall of 2016, but could also be a result of the market slowly adapting to the new production. With Fertilizer Institute production data lagging by three months or more, information on the production capacity of these plants may not be reaching the market yet, but Genscape is still able to provide insights for its clients on a daily basis. 

    Natural gas use monitored by Genscape at the new CF Industries anhydrous and urea production plant addition in Port Neal, Iowa and the Iowa Fertilizer Plant in Wever, Iowa indicates that both plants have begun production (Figures 2 and 3).

    While the Iowa Fertilizer Plant has been slow to generate consistent production, the CF Industries Plant has been producing product since the start of 2017. Out of the almost 90,000 mm Btu of natural gas currently being used at the new facility, Genscape believes that approximately 72,000 mm Btu of it is most likely being devoted to ammonia production. This leaves the other 18,000 mm Btu allocated towards urea production; which based on an industry norm of 4.5 mm Btu per short ton of urea, leads to over 3,000 tons of urea a day (over 1,190,000 tons a year) of production that will be available to growers during the 2017 agricultural season (Figure 4). Production at the Iowa Fertilizer Plant is more difficult to read, but is clearly beginning to show signs of being consistently at maximum, further adding to the supply in the U.S. corn belt.

    Adding these two plants to an expected production increase in the Agrium Borger, Texas, plant emphasizes the change in supply dynamics of the U.S. market. Genscape’s U.S. Fertilizer Production and Transportation Report provides clients with access to near-real time production changes at these two Iowa facilities and many others across the U.S. The report also includes the most accurate import vessel data, sharing a unique view into the market. To learn more, or to request a trial of Genscape’s U.S. Fertilizer Production and Transportation Report, please click here.

  • Major CRE Segments Produce Strong Growth 2 years ago

    Bank share prices fell by about 5% as the prospect for regulatory reform weakened. The failure of the House to pass the American Health Care Act (AHCA) cast doubt on other items on the Trump Administration’s agenda, such as tax reform and changes to Dodd-Frank financial regulation. Banks were hit particularly hard, falling by a much wider margin than the -1.4% overall decline in the broader stock market.

    Shares for the largest banks’ fell -4.8%, while regional bank shares fell by -5.7%. Interest rates fell as well, with the 10-year Treasury yield falling 10 basis points to 2.40%.

    The issue of bank regulatory reform is probably more a matter of “when” than “if.” Still, it will be interesting to see which areas of changes to bank regulation gain the most traction provided that large, mid-size, and small banks are impacted in different ways. Thus, each segment of the bank universe will likely be pushing for different items to be at the top of the agenda for review and change.

    Weekly Trend

    Overall commercial real estate lending growth edged into double digits as all three of the major CRE segments produced solid growth. Construction and land development lending grew at a 17.1% annualized rate, breaking out of the flat trend of the previous three weeks. Multifamily mortgage lending expanded at a 9.0% annualized growth rate, slower than the previous two weeks, but still solid. Commercial mortgages accelerated into double digits, with a 10.5% annual growth rate.


    Total commercial real estate lending growth for the year to date edged up to 8.9%. The annualized growth rate for construction and land development rose to 12.9%. The annualized year-to-date growth rate for multifamily properties was stable at 10.1%. That same rate for commercial mortgages rose to 7.7%.


  • Most Recent Conduit Prices Wider Than Predecessors 2 years ago

    By the end of Friday's session, over $1.2 billion was out for bid in the CMBS cash market last week. It was the busiest week for CMBS cash trading thus far in 2017. Secondary trading activity was particularly heavy on Wednesday and Thursday, as bonds across all asset classes and segments of the credit curve were represented. Last Wednesday, the $637.56 million WFCM 2017-RB1 printed at 93 basis points over swaps for the super senior AAA, up from initial price talk of S+88. Pricing was several points wider than the JPMDB 2017-C5 deal that priced five days prior. While AAA spreads on the WFCM conduit were marginally wider than others issued in 2017, spreads for the single-A and BBB- classes cleared at or near the year’s tightest levels. Investors noted that the drop in the 10-year Treasury yield earlier in the week contributed to the pricing disparity seen further down the stack. Wells Fargo is retaining a 5% vertical strip of the deal for risk retention compliance.

    In the CMBX sector, spreads at the top of the capital stack held steady, while BBB- spreads widened across the 6-10 series. Over the past week, CMBX BBB- spreads widened between 10 to 14 basis points for the two newest indexes, while BBB- spreads for CMBX 6/7/8 inched out by an additional 19 to 34 basis points.

    Elsewhere in CRE, major retailers continued to make headlines last week after detailing bleak outlooks for the year ahead. Sears stated in its annual report on Tuesday that the company was having “substantial doubt” regarding its ability “to continue as a going concern.” Additionally, the firm indicated that it was looking for ways to streamline its operations by cutting costs and selling off some of its businesses. The very next day, reports emerged that discount shoe retailer Payless was planning to file for bankruptcy protection and close up to 500 stores. Surprisingly, Payless has a sizable footprint in CMBS, but mostly serves as a major anchor for small notes with a remaining balance of less than $7 million. Excluding large portfolio loans backed by multiple properties, noteworthy loans that feature Payless as a major tenant include the $27.7 Payless and Brown Industrial Portfolio, the $5.9 million Two Rivers note, and the $5.6 million Princess Anne Marketplace. Similarly, GameStop announced it will close 150 stores this year, while women’s apparel brand Bebe will shut down all 170 of its physical locations in order to shift their focus to growing their online business.

    Friday’s Commercial Mortgage Alert issue noted that Wells Fargo will be downsizing the number of “kitchen sink” conduit offerings it puts to market this year in order to expand its lending program with Bank of America and Morgan Stanley. (Those CMBS deals issued with BoA and MS are commonly known as the “BNK” series.) As a part of the “kitchen sink” program run by Wells Fargo, the bank collaborates with several rotating, smaller lenders that are constrained by financial resources, and commonly use this option as a way to participate in the CMBS space. The decision to cut back on such offerings underscores the effect of regulatory mandates on the securitized lending landscape, which has become increasingly more hostile towards smaller conduit shops in favor of larger financial institutions that can afford higher capital requirements under risk retention.

    New Conduit Issuance

    Trading and CMBX Spreads

    CMBS Swap Spreads

    Legacy LCF Price and Swap Spread Movement


    Top Credit Stories from the Week

    Trading Alert: Citi Vacates Ohio Office (MSC 2006-HQ8)

    - J.P. Morgan to Vacate Texas Office Portfolio (MSC 2007-IQ14) 

    - Long Island Office to Lose Sole Tenant; Extension Possible (BSCMS 2007-T26)

    - Watergate Office in D.C. to be Sold for $135M (LBUBS 2007-C2

  • How Are Net Lease REITs Faring with Higher Rates? 2 years ago

    With two more rate hikes in store for 2017, investors are keeping an eye on net lease REITs, which are one of the REIT sectors most sensitive to interest rate movements. Seeking Alpha characterizes these REITs as the most bond-like, as they “generally rent properties with long-term leases (10-25 years) to high credit-quality tenants, usually in the retail and restaurant spaces.”

    Net lease REITs are distinguished by their triple-net lease structure, where assets are typically acquired in sale-leaseback transactions and tenants pay all management expenses (such as property taxes, maintenance, and insurance), much like a ground lease. This provides a predictable, long-term income stream, making triple-net lease REITs similar to long-duration credit bonds. Since net lease REITs act as bond alternatives to many investors, they are highly sensitive to interest rates, as increased rates typically push bond prices lower and yields higher.

    Triple-net lease REITs have made a substantial recovery after plunging by 25% by the end of last year. After dropping sharply following the election, net lease REITs have rallied and outperformed bonds, surging 11% from January until March. It was one of the top performing sectors last week, following the 4.53% returns for shopping centers with a 3.65% gain. Net lease REITs also went against the current and actually reported high acquisition numbers during the second and third quarters of 2016, while REITs overall posted record-high disposition rates.

    Although this REIT sector is strongly correlated to bond yields, it has inflation-hedging properties which caused them to outperform bonds when inflation expectations were high prior to the December rate hike. Net lease REITs are still on an upward trend for the first quarter, and could “see increased attention from fixed income investors seeking inflation-hedged bond/credit alternatives.”  However, investors should note that while most REIT sectors are optimistic about gaining from the robust economy, net lease REITs will show little benefit from it. With already near-full occupancy rates and long-term tenants with excellent credit quality, the growing economy and rising consumer confidence will virtually have no effect on net lease REITs, while boosting most of the other major property sectors. As a result, the sector may appear to be underperforming relative to the other property sector REITs this year.

  • BuildingsNY Show Recap: Your 5 Most-Pressing Questions, Answered! 2 years ago

    At the BuildingsNY show March 21-22, we spoke with hundreds of property managers, supers, compliance professionals, developers and construction professionals. They had tough compliance questions, and we had answers – many of which are applicable to anyone working in property management today. Read on for the most frequently asked questions we received at the show and how these issues may affect your buildings.

    1. How can I make dealing with tenants easier?
      Breaking “The 311 Cycle” is incredibly important for running an efficient property management operation. When tenants feel frustrated, or unable to reach you, often they resort to calling 311 and lodging complaints, which turn into HPD inspections, which turn into headaches for your staff.
      At BuildingsNY, SiteCompli unveiled our Tenant Communications suite, which automatically triages, organizes, and manages tenant requests 24/7, increasing tenant satisfaction and communication efficiency without burdening your staff. For more information, contact us at
    2. When do new energy benchmarking regulations take effect?
      Buildings greater than 25,000 gross square feet will soon have to file Local Law 84 Annual Benchmarking Reports. This requirement may begin as soon as 2018. For more up-to-date information, read this recent blog post.
    3. What are best practices for HPD eCertification?
      is a paperless process for correcting HPD violations online. The HPD released some helpful resources here on how the process works.If you can’t eCertify, you always have the option to submit by mail or in person.
    4. What’s new with SiteCompli?
      Thanks for asking! We’ve been busy rolling out our new core platform, which over half our clients have started using. The All-New SiteCompli has upgraded functionality, a wider set of tools, and a faster interface. Ask us about how it can supercharge your property management efficiency –
    5. What are the city’s new gas regulations?
      Several Local Laws were passed in late 2016 regulating gas piping systems. Refer to our recent blog post for the ins and outs of the new laws!

    The post BuildingsNY Show Recap: Your 5 Most-Pressing Questions, Answered! appeared first on SiteCompli.

  • Another Year of Healthy Liquidity on Tap for CRE 2 years ago

    A recent survey of investors conducted by CBRE indicated that a lack of liquidity in the commercial real estate market should not be a concern. Last year, $895 billion of capital poured into commercial real estate globally. While that was down 9% from 2015, it was still the second-highest yearly volume for the sector since 2007, when just more than $1 trillion poured in.

    This year, CBRE found that investors have earmarked $1.7 trillion for global commercial real estate. Though not all of that will be deployed, it shows that the sector will have another year with healthy liquidity. In addition to allocating capital to properties and mortgages, investors have altered their expectations and preferences.

    Capital flows into any one sector depend on a variety of factors, from global and regional economic prospects to relative value. Economic growth typically indicates an increase in capital flowing into real estate, whose cash flows typically improve during periods of economic growth.

    Last year's survey found that more than one-third of investors sought commercial real estate because of the expectation that their investments would grow in value more than other assets. This year, less than 20% made that claim.

    Investors are no longer expecting much growth in value, which is not a surprise given the high prices of real estate trades. Instead, 30% of respondents said they expected real estate to provide them with better ongoing yields than other asset classes.

    The bulk of the $1.7 trillion of capital earmarked for global CRE is in the hands of the investment management community, which has raised billions through vehicles designed to provide both debt and equity capital for properties. Another 11% would come from private investors and another 11% from REITs, both listed and not. Sovereign wealth funds would contribute only 1% of the total.

    CBRE surveyed a broad range of investors globally, asking whether they would increase or decrease their exposure to commercial real estate, what types of investments they would pursue, and where they would invest. Overwhelmingly, investors said they would invest either about the same or more than they did last year. While investors had turned to core investments last year, they now say they are more inclined to pursue value-add opportunities or properties in secondary markets.

    Investors are showing a greater interest in putting capital to work in North America. The survey indicated 54% of cross-border investors are showing a preference for North America, compared to 37% interest from last year’s survey. Los Angeles, Dallas, New York, and Washington, D.C. were their preferred targets. Other cities on investors’ radar include Atlanta, San Francisco and Seattle.

    Meanwhile, office is the most-favored asset class among investors, with 25% favoring it. Multifamily and industrial had strong showings, with more than 20% favoring them. Retail saw a meager 12% preference from investors, down from 21% in last year's survey.

    Though that $1.7 trillion of capital earmarked for commercial real estate this year might not be the final tally, it's encouraging to see that more and more funds are flowing into the market.

  • Three Updates for Recent Gas Regulations 2 years ago

    We’re following up on our previous post with some quick updates straight from the Department of Buildings.

    On Local Law 151, the DOB is currently performing final inspections on all permitted gas piping system work in Manhattan. This will expand to all boroughs before the end of 2017.
    For Local Law 154, utility companies and building owners are now required to notify the DOB if gas is shut off due to safety concerns, and not restored within 24 hours.
    Local Law 158 (Gas Piping Work Civil Penalty Amnesty Program) is set to begin on April 5th. Any associated Department of Buildings civil penalties for legalization of fuel gas piping systems or a violation for work performed without a permit associated with fuel gas piping systems will be waived if:

    • The work was performed or the violations were issued prior to April 5, 2017 and civil penalties have not been paid; and
    • Applicants obtain a permit to resolve the improper work between April 5, 2017 and October 5, 2017; and
    • Applicants have the job signed off by the Department one year from the day the permit is issued.

    Stay tuned for future updates about the recent package of gas piping legislation!

    The post Three Updates for Recent Gas Regulations appeared first on SiteCompli.

  • Wholesale Power Prices in Mexico: Genscape Brings New Tools to the Market 2 years ago

    The deregulation of Mexico’s power sector has progressed in fits and starts over the last year and a half, but it is on course to achieve a historic transition from a vertically integrated state-owned monopoly to a fully open and competitive market. This new market offers tremendous opportunities for new entrants. In contrast to the U.S. market where demand growth is anemic and wholesale power prices are setting record lows, Mexican load is growing and prices remain elevated.

    The entry barriers for this market continue to fall. The market structure is patterned closely after PJM, with an independent system operator named El Centro Nacional de Control de Energía (CENACE), which has been operating the Day Ahead Market since January 2016. The market dominance of the Federal Electricity Commission (CFE) Generation has been addressed by breaking CFE up into six independent companies. A series of successful renewable generation auctions have brought in dozens of new market participants. Though a lack of market data and transparency has been another barrier in the early stages of the market, this too is starting to fall.        In response to client requests, Genscape has developed a range of tools and services to help Mexico power market participants understand and navigate this new market. These tools, Genscape PowerRT and PowerIQ™, will be familiar to anyone acquainted with Genscape’s expertise in the power markets. 
      In the process of creating these tools and underlying models, Genscape has observed some interesting features of the Mexican market when it comes to wholesale prices. One aspect of pricing in Mexico is that losses are very strong and significantly impact prices. By comparing the ratio of losses to energy costs (below), we can get a sense how strong this impact is. On average, marginal loss costs (MLCs) in Mexico range from two percent of energy costs on the low end, all the way to 12 percent in Peninsular. Looking at some of the main hubs in the U.S. markets, the impact of losses is much lower. Congestion costs in the Mexican market are also high, though are within the range of those seen in the U.S. The significance of MLCs create opportunities in the FTR market, and for virtual trading that are unique and virtually unparalleled in the U.S. markets. Instead of just trying to find strategies for congestion, traders will have to look closely at the impact of losses.       Another trend in market prices so far is the significant price separation between the northern and southern parts of the country. The following graph depicts average LMP across Mexico for the last twelve months. It includes prices for each of the seven zones in the interconnected system, along with a northern region aggregate (Norte, Noreste, Noroeste) and a central region aggregate (Central, Occidental, Oriental).
        For nine of the 12 months, prices in the northern control zones have been pushed below the rest of the country by losses and congestion. Observing near-real time generation on Genscape’s PowerRT tool was instrumental in identifying the macro factors that have contributed to this separation. Capacity factors in the northern part of the country are high where large, cheap thermal units are found. This is especially true for Noreste, where many gas plants including the Altamira and Rio Bravo combined cycles are located, along with two large coal plants (Rio Escondido and Carbon II). Meanwhile, the southern part of the country is rich in hydro assets. Due to ongoing drought conditions, running these hydro plants extensively is largely reserved for the summer months when they run at low levels outside of the June to August period. As a result, power in the northern part of the country is pulled south towards the country’s load centers, driving the price separation.;

    This dynamic has been exacerbated in recent months as new generation has come online in the north. In October 2016, the Frontera plant in southwestern Texas was disconnected from the ERCOT system and now supplies power to the Mexican grid. Also in the Northeast, the Pesqueria combined cycle power plant started running outside of Monterrey with an operating capacity near 900MW. 

    ​Genscape will continue to monitor fundamental price drivers on a daily basis, bringing unparalleled experience from the U.S. markets. Genscape’s PowerRT product provides near-real time data on power plant output around the country. Currently the platform provides data on more than 50 percent of CFE’s generating capacity, as well as independently owned power plants such as Frontera. PowerIQ is a daily report that analyzes and predicts market conditions in Mexico. This includes a 14-day demand forecast, a bal-day and next-day wind forecast, and power price expectations for each of the nine control zones. These price forecasts are produced using Genscape’s proprietary SEER model. SEER is a security-constrained economic dispatch model that combines full network topology with detailed power plant data to create accurate price forecasts at the nodal level. 

    As additional information becomes available to the marketplace, it will be synthesized into our ongoing analysis for Genscape PowerIQ clients. In the coming months we will add more detailed information to the PowerIQ reports, including specific constraints and transmission line outages. Genscape's PowerRT platform will also continue to evolve as we expand the coverage of its monitors across the country.  All of this data will enhance our daily forecasting. Looking further out, new portions of the market will soon open up, including near-real time pricing and an active market for FTRs. As this takes place, Genscape will continue to be there to shed light on this exciting opportunity in the power market sector. To learn more about Genscape's PowerRT, or to request a trial, please click here.

  • Overall CRE Lending Regains Strength 2 years ago

    Bank share prices fell for a second week as a result of higher interest rates. At its March 14-15 FOMC meeting the Fed decided to raise the fed funds rate by 25 basis points, citing overall economic growth and job gains. The move was widely expected, yet bank shares sold off on concerns about the prospect for higher rates and the impact on earnings growth.

    Regional banks’ shares fell by -2.2%, while the largest banks’ shares fell by -1.1% for the week. The drops came as the yield curve flattened, with the 10-year Treasury yield ending the week 8 basis points lower at 2.501%. Bank share performance had been propelled by investor expectations for higher interest margins and regulatory relief, after the election of Donald Trump. More recently though, the market has been questioning whether the advance in bank share prices had got too far ahead of market fundamentals.

    Weekly Trend

    Overall commercial real estate lending growth picked up after a couple slow weeks. Construction and land development lending grew at a 6.0% annualized rate, reversing the negative trend of the previous two weeks. Multifamily mortgage lending posted another strong week with a 16.2% annualized growth rate. Commercial mortgages also accelerated, with a 9.0% annual growth rate.


    Total commercial real estate lending growth for the year-to-date edged up to 8.5%. The annualized growth rate for construction and land development fell to 10.5%. Multifamily properties’ annualized growth rate for the year-to-date rose to 8.9%, but is still well below the 12.7% annual pace in 2016. The annualized year-to-date growth rate for commercial mortgages rose to 8.0%.


  • Property Type Snapshot: Can Hotels Hold Their Ground in 2017? 2 years ago

    Major gateway markets across the US received record high tourism levels throughout 2016, exceeding the low expectations set because of geo-political issues and economic volatility. Tourism and leisure spending is forecast to rise even more in 2017, as consumer confidence has been on an upward trend this year so far, which many attribute to the Trump administration’s potential for deregulation. Though the lodging sector posted solid overall performance last year, many are cautiously observing whether it can remain steadfast against last year’s hurdles of new supply production, the rise of alternative accommodations, and the subsequent softening in property values and income growth.

    According to Trepp data, the average occupancy rate for lodging properties backed by CMBS loans is 74.4% as of February 2017. A recent TreppTalk blog stated that the national hotel occupancy rate improved just 10 basis points to 65.5% in 2016. The highest growth rates were observed in secondary markets, West Coast metro areas, and Washington D.C. Some major markets, including Houston, Miami, and New York, posted negative growth rates. CMBS loan issuance for the lodging sector reached a healthy $13.0 billion, though this is still down from its recent yearly peak of $21.7 billion in 2014.

    Lodging CMBS issuance came in at $842.0 million in February, down slightly from the recent 12-month average of $1.08 billion. The highest monthly issuance recorded in the past year was $3.96 billion this past November, nearly $3 billion of which were single-asset/single-borrower (SASB) loans. In February, a total of $461.0 million across 26 conduit loans was securitized, and $381 million was issued between two SASB notes. Conduit loans represent 54.8% of the lodging CMBS paper issued over the last 12 months, while SASB loans comprised 42.0%. The remaining 3.2% of the balance issued fell under the large loan category.

    Access an Overview of the Hotel Sector

    February loss dispositions for the lodging sector were relatively high, as about 10% of the month’s total liquidation volume paid off with losses. This is up from the 12-month average, which came to 2.7%. Loss severity came in at 52.2% last month, pulling the six period moving average up to 36.7%. Still, this average has been on a decline since the year-high of 65.1% measured last March. The average loss severity hit a low of 29.1% in December.

    Over the next six months, approximately $14.5 billion across 378 lodging CMBS loans are coming due. Currently, 3.7% of this balance is currently in special servicing, and 2.9% is delinquent. The weighted average DSCR for loans maturing in the next six months is 1.70x, though loans maturing in March possess the lowest weighted average of 1.31x. The sector’s performance reflects a resilient tourism industry, as travel and leisure spending has still increased enough to offset the obstacles posed by high supply and the rise of alternative accommodations. However, the “uneven” growth from 2016 is a trend to watch. Although investors are beginning to tap into the growth potential within secondary markets, this shift may also come with a drop in lodging demand for some higher-priced major markets.


  • New Conduit Issues Continue to Price at Drum-Tight Levels 2 years ago

    CMBS cash trading was muted in the middle of last week while a major snowstorm swept through northern New York and Connecticut. By the closing bell on Friday, overall volume for the week reached $360 million. Cash spreads at the top of the stack largely held steady, while the BBB- rack at the bottom tightened modestly for new issues. A number of “D” class paper from new vintages traded tighter than expectations on Thursday, which helped pull in spreads. 

    In terms of CMBX, spreads leaked wider early in the week, but narrowed in sympathy with Wednesday’s equity rally after the Fed raised interest rates for the third time since the financial crisis. In light of the strong February jobs report and other data pointing to continued economic expansion, the Fed bumped up rates to a target range of 0.75% to 1%, with plans for two more rate hikes throughout 2017. CMBX spreads moved in quite a bit after the announcement on Wednesday, but pared off some of these gains on Thursday. For the week, CMBX 6/7/8/9/10 AAA spreads were largely unchanged while BBB- spreads widened between 19 and 33 basis points.

    Two single-borrower transactions with horizontal risk retention structures priced last week, including the $1.02 billion CST 2017-SKY transaction backed by the Willis Tower in Chicago. Spreads cleared at impressively tight levels for that deal, with the AAA pricing at 80 basis points over swaps, and the BBB- coming in at S+225. The very next day, the $1.1 billion JPMDB 2017-C5 conduit printed at S+89 for the long AAA class, only one basis point shy of 2017’s best. Lower down the credit stack, the single-A priced at S+170 while the split-rated, class D BBB/BBB+ bonds cleared at S+255. Spearheaded by JP Morgan and Deutsche Bank, the largest loan in the horizontal risk retention deal is an $80 million slice from a $370 million mortgage backed by a retail condominium in Times Square.

    In the CRE space, JCPenney released its official list of 138 store locations flagged for closure on Friday, which represents 13%-14% of the retailer’s physical store count. The closures reflect the retailer’s vision for long-term growth and profitability as it shifts its focus on omnichannel strategies. Liquidation sales will commence on April 17th. As we detailed in our email alert on Friday, the overall impact for CMBS is smaller than anticipated: exposure spans 11 CMBS loans totaling $894.4 million across 13 deals. The most notable loans to footnote are the $388.5 million Palisades Center note, the $278.2 million Franklin Mills loan, and the $10.3 million Hilltop Mall mortgage. Earlier this week, closure lists for Gander Mountain, Gordmans, and RadioShack all started making their way around various news outlets. The full exposure lists for the aforementioned retailers are featured on our In the Spotlight section.

    New Conduit Issuance

    Trading and CMBX Spreads

    CMBS Swap Spreads

    Legacy LCF Price and Swap Spread Movement


    Top Credit Stories from the Week

    New York Office Tower and maryland Portfolio Win Refinancing (WBCMT 2007-C30 & more)

    - Appraisal Values Chopped for Three New Jersey Offices (BSCMS 2007-PW15)

    - Defaulted Loan Behind Texas Mall Assigned ARA; Modification Forthcoming (CD 2007-CD4)

    - Two Arizona Offices Behind University of Phoenix Portfolio Sold to New Owners (CD 2005-CD1)

  • REITs and the March Rate Increase 2 years ago

    For the second time since December, the Federal Reserve has upped the benchmark interest rate by a quarter point to a target range of 0.75-1.0%. The news of the rate hike caused government bond yields to drop, but added to gains across all three major stock indexes on Wednesday. According to Seeking Alpha, REITs also rallied by over 2% immediately following the announcement, confirming that REIT investors should not fear interest rate increases.

    The REIT market’s response to the March rate hike closely mirrored that of the December rate increase—REITs tumbled leading up to the rate hike, dropping sharply this past October and November. The REIT ETF indexes similarly declined by 2% and then 4.5% in the two weeks leading up to the March rate hike. However, REITs immediately recovered both times, rising as soon as the rate was actually increased.  Furthermore, in the 16 periods since 1995 that experienced significant rate hikes, “equity REITs generated positive returns in 12 of them or 75% of the time.” It appears that the market tends to overreact in anticipation of the rate hike, but regains buyer confidence after investors recognize that higher rates do not necessarily devalue REITs. The current growing economy supports superior business fundamentals for the sector, such as rising rent growth, occupancy levels, and cash flows.

    While there are some negative impacts of a rate increase on REITs—such as less demand for acquisitions and higher cap rates—the fact that REITs have historically performed well after rate increases can assure investors that rate hikes reflect a healthy, growing economy, which is the core fundamental for real estate and REIT performance. This promotes a positive outlook for the year ahead, as two more hikes are anticipated for the remainder of 2017

  • Evolution of the CMBS Market 2 years ago

    The CMBS market has undergone substantial changes since its start in the mid-1990s. Prior to development, mortgages against middle-market commercial properties in secondary and tertiary markets were often provided by savings and loan institutions. When hundreds of S&Ls failed in the early 1990s, the market came to a screeching halt.

    The federal government formed the Resolution Trust Corporation to clean up the mess that remained. Wall Street and the RTC began selling nonperforming loans by packaging them into bonds. It eventually packaged performing loans as securities, and CMBS was born.

    The market began to gain momentum in the early 2000s, issuance became steady at roughly $50 billion annually. Then things picked up rapidly. In 2003, $77.8 billion was issued, followed by $93.8 billion the following year. Issuance breached the $100 billion mark in 2005 when $168.2 billion was issued.

    Bond investors were eating up investment-grade securities, driving spreads and yields lower. This allowed lenders to offer lower rates and greater loan proceeds. In 2007, $230.5 billion of CMBS was issued, a 13.7% jump from 2006.

    The markets collapsed. Regulators, in an effort to legislate against future collapses, decided to mandate that issuers retain some of the risk in the securities they issued. Their target was residential mortgages, which drove the collapse, but CMBS was caught in the cross-hairs.

    And here we are now. Fannie Mae and Freddie Mac fund nearly all residential mortgages today and are exempt from the risk retention rule, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law in 2010.

    CMBS issuers have to abide by the rule, which requires an issuer to maintain skin in the game. They can chose to keep a vertical slice, amounting to 5% of face value of every deal it issues, or it can sell a horizontal slice, amounting to 5% of the deal's market value, to a qualified investor. Many viewed the rule as an illiquidity tax because issuers or buyers of the horizontal slice, the B-piece, wouldn't be able to trade out of their positions. That restriction comes with a cost.

    The belief was that borrowers, the owners of middle-market properties across the country who turn to securitized lenders for fixed-rate loans that generally have 10-year terms, would end up picking the costs. Issuers would simply pass the cost along. That would have made CMBS conduit lenders less competitive with other lender types. While that was the case early on, there's little evidence it's still happening.

    Who's bearing the burden of the new rules, the illiquidity tax? It depends. When issuers adopt the vertical risk-retention structure, it's clear they are.  When deals are structured with a horizontal or hybrid risk-retention structure, where both vertical and horizontal pieces are retained, the B-piece buyer swallows the cost. They too can't trade, leverage or hedge their investments.

    The good news is that bond investors continue to buy CMBS, as evidenced by the stable spreads at which bonds have cleared, and has kept lending open.

  • U.S. East Coast Gasoline, Diesel Demand Spikes Then Declines Due to Winter Storm Stella: Supply Side 2 years ago

    Winter Storm Stella, a widespread blizzard across the mid-Atlantic and New England states on March 14, 2017, slashed gasoline and diesel demand as the inclement weather kept drivers off the road, according to Genscape Supply Side data. However, demand appeared to be boosted on March 12 and 13 by consumers filling up their tanks ahead of the winter-weather warnings.

    The blizzard warning on March 14 spanned across New England and the mid-Atlantic, from Pennsylvania north to Maine. New York, Boston, and Philadelphia appeared to be spared from forecasted heavy snow, but parts of upstate New York recorded 30 inches of snow on March 14, and parts of Pennsylvania, Connecticut, New Hampshire, Vermont, and Maine saw 20 inches of snow, according to various news sources. The National Weather Service had blizzard warnings in effect for parts of New England until early morning on March 15 as the last of the snow persisted. 

    Total PADD 1A (New England) gasoline rack activity fell 69 percent and diesel rack activity fell 69 percent on March 14 from the previous day amid the winter storm, and PADD 1B (mid-Atlantic) rack demand dropped 65 percent on March 14 compared to the previous day. Diesel rack activity also declined in PADD 1B on March 14 from the previous day, down 75 percent from March 13.

    When looking at individual states, rack activity for both gasoline and No. 2 diesel appeared to spike on March 12 and March 13 before dropping significantly amid the blizzard. For gasoline, Connecticut saw the largest jump in rack activity on March 13, up 46 percent from week-ago level to six million gallons. During the storm on March 14, Connecticut gasoline rack activity fell to just 820,000 gallons, nearly 81 percent below the previous Tuesday.

    In New Jersey, gasoline rack demand jumped 30 percent on March 13 above the previous week to 14 million gallons, and fell almost 73 percent to the previous week during the storm to just 2.8 million gallons on March 14. 

    For No. 2 diesel, the largest week-on-week jump in rack activity prior to the winter storm was seen in New Hampshire, where activity rose nearly 117 percent on March 14 to over one million gallons. During the storm on March 14, the largest declines were seen in Connecticut and New Jersey. In Connecticut, diesel rack demand fell 94 percent from the previous week to just 140,000 gallons on March 14. In New Jersey, diesel rack activity dropped nearly 86 percent from the previous week to just 375,000 gallons during the winter storm. 

    Inclement weather, like a blizzard, can affect gasoline and diesel sales as driving demand declines due to hazardous conditions. By measuring refined products rack activity, Genscape’s Supply Side data shows the full market impact of weather events. 

    Genscape Supply Side data is derived from actual transactions at the rack level, where gasoline and diesel are distributed from secondary storage terminals to retail stations. On average, Genscape covers 72 percent of total gasoline rack activity and 68 percent of total diesel rack activity. This rack activity data can be used as an indicator or retail (or tertiary) refined products demand. To learn more or request a trial of the Supply Side data, please click here.

  • Property Type Snapshot: Is There an Undersupply in the Industrial Sector? 2 years ago

    Growing companies rely on the critical functions of industrial properties for the vital tasks of e-commerce fulfillment and global distribution. In addition to those factors, demand for these spaces continues to rise thanks to increased import levels. The number of manufacturing jobs has been on a steady incline since early 2011, so external factors point to a healthy sector. In CMBS, that same sentiment can be shared as average occupancy for industrial properties climbs, delinquencies have been down, and credit quality of newly issued loans is sterling. Still, there are factors at play for market participants to monitor in the near term.

    In a recent market survey conducted by Xceligent, 74% of participants said their greatest concerns for the commercial real estate industry over the next 12-24 months are supply and demand issues. Many of the survey participants commented that the industrial segment has been noticeably more active, and sector-wide vacancy is very low. Several have voiced concerns that there is an undersupply of industrial space. According to Trepp data, the average occupancy rate for industrial CMBS loans has increased annually over the past five years. Average loan occupancy rose from 91.9% in 2011 to 95.7% in 2016. As of last month, the industrial sector continued to average the highest occupancy among all major property types at 96.0%. With occupancies ascending, the level of supply could be reaching an inflection point.

    While the volume of 2016 industrial issuance trailed the prior year’s total, it still eclipsed the $3-billion mark, a feat that has been achieved annually since 2014. The number of industrial properties securing private-label CMBS loans shot up to 1,055 in 2015, which is well over the amount securitized for the previous three years combined. Trepp data shows that single-asset/single-borrower (SASB) transactions have been a major contributor to industrial CMBS activity over the past two years, accounting for 62.7% of private-label issuance in 2015, and 26.1% in 2016.

    Access an Overview of Industrial CMBS Issuance

    The industrial delinquency rate has fallen significantly in the past two years, and came in at 5.94% last month. This is a substantial improvement from its peak of 12.7% in 2012. Industrial demand had its most acute uptick begin in 2015, which translated to highly elevated issuance levels and a markedly improving delinquency rate. Over the past two years, the industrial delinquency rate began to closely approach the national delinquency curve. Last month, the spread between the two tightened to just 0.66%.

    E-commerce is a major factor that continues to drive the industrial sector forward; and industrial loans are riding on great momentum into 2017. However, Tony Argiro from CBRE observes “at this time, demand for new buildings is slightly above supply… A flood of new construction could easily disrupt the industrial market and lead to asking rates dropping.” Thus, the spike in occupancy rates and property values are tied to the sector’s current surplus of demand. Ultimately, future sector performance can either be positively or negatively influenced by the amount of new construction in the pipeline.


  • 5 Largest CMBS Loan Losses - February 2017 2 years ago

    After reaching a 12-month high of $1.4 billion in January, CMBS disposition volume remained elevated in February as 47 loans totaling $956.8 million were disposed last month. Due to several large office and lodging dispositions, average loan size also rose from $14.6 million in January to $20.4 million, which is the highest level recorded in over 20 months. Despite increases in overall volume and average loan size, overall loss severity dropped over nine percentage points to 48.76% in February.

    Office loans incurred the highest realized loss amount last month at $228.3 million total. Retail and lodging loans followed with $129.2 million and $85.2 million, respectively. Office loans alone comprised 50.1% of February’s disposition volume. Retail loans represented 20.8%, followed by lodging loans at 17.1%. Retail loans carry the highest loss severity of the three, climbing 11% from January to 64.8% last month.

    Below are the five CMBS loans that incurred the largest losses by amount per February’s remittance updates.

    1. Connecticut Financial Center - B note

    The $60.4 million B note behind the Connecticut Financial Center incurred the largest loss in February, as it was disposed in full. The collateral is a 464,256 square-foot office in New Haven, Connecticut that features Yale University as its largest tenant. Although the $70 million A note also suffered a loss, it came in well shorter than that of the B note at just a 1% severity. Unlike other loans that are disposed, the Connecticut Financial Center was only in special servicing for a little more than two months before the write-down. The debt was transferred to special servicing in November for an imminent monetary default. Servicer commentary stated that the most recent building occupancy was 86%. Though the loan was not carrying an appraisal reduction, the value of collateral was reduced from $163 million at securitization to $65.7 million in December. The B note made up 7.57% of BACM 2007-2 prior to disposal, a deal which has lost 9.30% of its original collateral via write-offs.

    2. James Center (GMACC 2006-C1)

    The second-largest loss incurred in February belonged to the $100 million piece of debt behind the James Center. Both the $100 million and $50 million notes were disposed last month: the larger piece suffered a $36.7 million loss for a 36.7% severity, while the $50 million note behind a separate 2006 deal was closed out with an $18.3 million loss (36.6% severity). The James Center complex is a trio of office towers in Downtown Richmond, Virginia that span 1.01 million square feet. After being transferred to special servicing in June 2014 due to a major tenant vacating one of the properties, the assets were turned back to the lender. The seller, LNR Partners, took control of the buildings last March with a deed in lieu of foreclosure from JEMB Realty. JEMB Realty bought the complex in 2005 for $184.4 million. The $100 million portion of the James Center debt comprised 36.91% of the collateral behind GMACC 2006-C1. 11.38% of that deal’s collateral has been wiped out due to bond losses.

    3. The Harrisburg Portfolio

    Backed by three offices in Harrisburg and one in Mechanicsburg, Pennsylvania, The Harrisburg Portfolio was closed out with the third-largest loss last month. Originally issued for $61 million, the $39.3 million portfolio was closed out with a $35.9 million loss for a 91.27% severity. The office collateral totaled 671,759 square feet, though the portfolio was originally backed by 16 office/flex buildings. After being transferred to special servicing in February 2013, the servicer began marketing the properties for sale. DSCR (NCF) and occupancy hit 1.38x and 91%, respectively, in 2009. Those levels fell to 0.99x and 75% in 2010, and later 0.07x and 55% in 2015. The most recent appraisal reduction amount (ARA) on the portfolio was $23.3 million, so the loss exceeded that estimation. Prior to disposal, the loan made up 27.04% of CD 2006-CD2. That deal has lost 14.78% of its original bond balance to write-downs.

    4. Minneapolis Airport Marriott 

    The $57.6 million loan behind the Minneapolis Airport Marriott incurred the fourth-largest loss in February. With a realized loss of $34.7 million, the note was written down at a loss severity of 60.23%. The note is backed by a 293,345 square-foot Marriott hotel located in Bloomington, Minnesota near the Minneapolis-St. Paul International Airport. After it was made known that a refinancing would not take place before the June 2016 maturity date, the loan was transferred to special servicing. DSCR (NCF) reached 1.34x in 2011, but that dropped to 1.14x in 2013 and 1.02x for the most recent 12-month period. Occupancy has remained between 67% and 72% since 2011. With an ARA just under $38.5 million, the loss undercut the expected tally. Valued at $90.8 million in 2006, the collateral was re-appraised for $23.2 million in 2016. The note comprised 14.28% of BACM 2006-3 prior to the write-off, a deal which has lost 15.18% of its original collateral.

    5. DDR/Macquarie Mervyn's Portfolio (GMACC 2006-C1)

    Last but not least, one of the loan pieces behind the DDR/Macquarie Mervyn's Portfolio was closed out with the fifth-largest loss last month. The slice of debt in question was a $34.8 million note that incurred a $34.5 million loss, amounting to a 99.16% severity. The note totaled $106.3 million at securitization, but was whittled down thanks to the sale of numerous pieces of collateral. Originally, the portfolio was backed by 35 retail centers across California, Nevada, and Arizona, but only eight remained at the time of disposal. The portfolio was transferred to special servicing all the way back in 2008 due to tenant bankruptcy. Over the course of the stay in servicing, the collateral appraisal was reduced from $397.7 million to $9.5 million as recently as June 2016. This slice made up 12.85% of the collateral behind GMACC 2006-C1.


    For more info on CMBS loans that have been disposed with losses, drop us a line at

  • CRE Lending Remains Slow for a Second Consecutive Week 2 years ago

    Bank share prices fell as investors appeared to reconsider the benefits of higher interest rates for bank earnings. A strong jobs report on Friday bolstered the expectation for a March rate hike by the Fed to a near certainty. Interest rates rose with the 10-year Treasury yield reaching 2.582%, an increase of 9 basis points.

    The largest banks’ shares fell by -0.4%, while regional banks’ shares fell by -1.9%. Though this slight dip is most likely a temporary setback. Higher interest rates have been contributing to bank share price growth; as higher rates will contribute to bank earnings through higher net interest margins. However, if interest rates rise too far, too fast, loan demand could be negatively affected. 

    Weekly Trend

    Overall commercial real estate lending growth was slow for the second consecutive week as two of the main CRE segments delivered disappointing results. Construction and land development lending contracted at a -2.5% annualized rate, the second negative rate in two weeks. Multifamily mortgage lending jumped back with a very strong 21.2% annualized growth rate after showing several weeks of slow growth. Commercial mortgages inched ahead at a 2.0% annual growth rate.


    Total commercial real estate lending growth for the year-to-date slowed to 8.1%. The annualized growth rate for construction and land development fell to 10.6%. Multifamily properties’ annualized growth rate for the year-to-date rose to 8.0%, still well below the 12.7% annual pace in 2016. The annualized year-to-date growth rate for commercial mortgages declined to 7.5%.


  • NEWS FLASH: U.S. SBA Loan Program By Any Other Name… 2 years ago

    If you haven’t gotten used to the new names for the SBA’s 7(a) and CDC programs, don’t worry. One of the first moves by the new U.S. Small Business Administrator appointed by President Trump was to rescind last year’s decision …

    The post NEWS FLASH: U.S. SBA Loan Program By Any Other Name… appeared first on EDRnet.