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July 2021 | Issue 236
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CMBS market picks hotels for bright summer ahead
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Sayed Kadiri
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CMBS and RMBS markets are set to be among the biggest beneficiaries as the US economy opens up in the latter half of this year, but market participants caution that there will be bifurcation in certain sectors.
Hotels, for instance, are generally expected to flourish as international travel picks up. But Andrew Solomon, co-head of structured credit at Angelo Gordon, says hotels are on different trajectories heading into the holiday season.
“Some parts of the hotel sector are actually better off than they were in 2019,” he says, pointing out that the economy range of hotels have outperformed bigger chains that cater towards business travel.
Retail is another industry where performance will be mixed, says Catie McKee, CMBS trader at King Street Capital Management in New York. “There were clear outperformers in the early stages of the pandemic, such as grocery stores and certain discount retailers,” she says. “But malls and top-end high-street retail, such as on Fifth Avenue, have really struggled.”
“There were clear outperformers in the early stages of the pandemic”
Catie McKee, CMBS trader | King Street Capital Management
In the RMBS market, Angelo Gordon’s TJ Durkin, co-head of structured credit alongside Solomon, says that single-family housing is bouncing back and there are worries house prices are edging too high. He sees bifurcation in the jobs market.
“When the pandemic first struck, service workers were most affected, but those businesses are starting to come back and appear to be over the worst,” says New York-based Durkin. “But as offices reopen, business might have to deal with over-capacity and we could see job losses for white collar workers. It’s almost two different economies.”
Against this backdrop, the US Federal Reserve signalled interest rate rises in 2023 in a move which could temper demand for long-duration fixed-rate products.
BofA’s research team reacted by shifting its view to underweight long cashflow triple As in the CMBS conduit market, while remaining overweight shorter duration floating-rate triple A CRE CLOs and single asset single borrower (SASB) paper. The majority of issuance this year has been skewed towards SASB and CRE CLOs.
CMBS spreads are close to where they were in January 2020, with series 13 CMBX double Bs (which launched in that month) hitting 634bp versus 624bp at launch.
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Global credit funds & CLO's
July 2021 | Issue 236
Published in London & New York.
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