The credit crunch could see the commercial mortgage-backed securities market passing an ominous milestone -- the first month in its two-decade history without a single issue priced.
None of the $37 billion in issues slated for the first quarter has priced, including Blackstone Group's $10 billion deal backed by Hilton Hotels and bonds assembled by dealers such as Goldman Sachs Group Inc. Their absence bodes poorly for the buyout boom that depended on the market for cheap financing, analysts and investors said.
The commercial mortgage-backed security (CMBS) market has been rocked by the fallout of the mortgage crisis as investors reduce risk appetites for all assets. The market in 2008 has faltered further, pushing yield premiums to record levels, saddling issuers with loan inventories and preventing them from making many new loans.
"If you originated loans in 2007, chances are now you are facing a wider spread environment and it may not make sense economically" to issue bonds, said Alan Todd, head of CMBS research at JPMorgan Chase & Co., a top underwriter. "Also, new originations have been slow" because lenders have not been making new fixed-rate loans, he said.
No demand for floating-rate deals also hurt issuance, said Darrell Wheeler, head of CMBS research at Citigroup Inc.
January appears to be the first month without issuance under the current market format, or since the Resolution Trust Corp stopped issuing CMBS in 1995, he said.
The situation in the CMBS market seems to be deteriorating rapidly. This story follows a couple from late last week. Overall, there was an expectation that CMBS issuance in the U.S. in 2008 could drop to just $100 billion. But I don't think anyone expected that there would be no issuance at all for the entire month of January.