CONDUITS ARE STABILIZING – SPREADS ARE DOWN / RATES ARE UP

The past 60 days have seen steady improvement in the securitization market. However it has also seen the continued rise in the price of gas and the continued decrease in consumer sentiment. So the question from the lending side on both the recourse and non-recourse sides is how the continuing weak economy will affect commercial real estate. Will vacancies rise in all types of real estate and cause a significant increase in commercial real estate foreclosures?

The issue for the next few months then may be more of an underwriting question versus the availability of capital for permanent loans. At this point the delinquency on commercial real estate loans throughout the industry (life companies and securitized pools) is still at historical lows (but they have increased in the past 12 months).

Wells Fargo and Column Financial are both in the market for 10 year fixed rate non-recourse loans. Their spreads have dropped to about 300 over the 10 year treasury. That is down almost 300 basis points from just a couple months ago. There have been several securitized pools sell over that time and they have performed very well. Now that the pools with all the full term interest only deals and no reserves are gone, the new pools have more conservative underwriting. Wells also has 3 and 5 year money at the same 300 basis point spread.

Treasuries have run up about 50 basis points in the past month so the perm rates for 10 year deals are in the high 6’s to low 7’s. The Wells 5 year deal will be in the mid 6% range. If you can live with at least some level of recourse than the BankAtlantic bridge program can deliver a rate in the 5’s.