CMBS at a standstill as panic grips financial markets

Volatility in real estate securities from fear over the spreading coronavirus is holding up new loans, refinancings

(Credit: iStock)
(Credit: iStock)

The marketplace where lenders sell mortgages on office buildings, rental properties and other types of commercial real estate as securities has ground to a halt as traders try to figure out how to price in risk amid the coronavirus pandemic.

It’s gut check time for the commercial mortgage backed securities market — which saw nearly $100 billion of new issuances last year — after pricing got expensive quick last week.

“The CMBS market is shut down,” one mortgage broker told The Real Deal on Monday.

Most lenders sell all or a portion of the loans they issue on commercial properties into the CMBS market. Without an active crowd of investors to buy the bonds, lenders are pumping the brakes on writing new loans, sources said, which is holding up acquisitions and refinancings.

One indication of the volatility arose last week, when a syndicate of lenders led by Credit Suisse priced an $829 million package of mortgages at an interest rate of 3.6 percent, a filing with the Securities and Exchange Commission shows. That was 139 basis points over CMBS interest rate swaps, which was 40 basis points more expensive than the previous CMBS deal priced the week earlier.

“It’s very rare to see spreads widen by 40 basis points in one week,” said Catherine Liu, a spokesperson at the CMBS data firm Trepp.

“The last time we saw that was back during the oil rout of 2016,” she added, referring to a period four years ago when spreads blew out 50 to 100 basis points as global oil prices crashed.

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Liu said there are now six CMBS deals waiting to get priced, but they’re being held up as sellers and buyers try to figure out pricing.

“There’s definitely a bit of a standstill,” she said.

Oil prices are once again tanking as demand for fuel falls off amid the coronavirus pandemic. Efforts to contain the spread of COVID-19 — such as the federal government’s travel bans, a quarantine for San Francisco, and decisions by New York City, Los Angeles and Chicago to order bars and restaurants closed — are exacerbating the oil rout.

The Federal Reserve on Sunday afternoon took a drastic step of lowering interest rates to near zero and committing $700 billion to keep markets for treasuries and mortgage backed securities churning.

But instead of instilling investors with confidence, it led to another crushing day for the markets, and with interest rates at zero, the Fed now has fewer tools to work with if things get worse.

The Dow Jones Industrial Average plummeted nearly 3,000 points on Monday for its largest drop since the 1987 “Black Monday” crash.

Contact Rich Bockmann at or 212-673-5081.