Spreads Expected to Tighten Approaching Year-End


The New York Federal Reserve liquidity announcement seemed to carry the mortgage-backed securities market last week, as MBS outperformed Treasurys, with the current coupon Fannie Mae outperforming Treasurys by 7/32.

According to sources, two commercial banks bought $2 billion worth of MBS, and some investors bought riskier mortgage securities instead of Treasurys.

"Now dealers are thinking that they can get better spread, and they aren't afraid of MBS," explained one veteran MBS trader. "It sends a message out that liquidity still exists in this market."

The Lehman Brothers aggregate index returned 7.27% and its fixed-rate mortgage index returned 7.33% last week.

"I think that MBS is doing very well," explained the source. "They will definitely continue to tighten and this Fed announcement certainly helps."

CMBS Deals Coming Up

Several new commercial mortgage-backed securities deals are expected to launch during the next few weeks.

Goldman, Sachs & Co. and Lehman are underwriting a CMBS transaction dubbed GGP-Ivanhoe, co-managed by Banc of America Securities, for $715.2 million. The collateral in the deal will be nine regional malls and one adjacent office complex across nine markets in eight states.

Five of the nine malls in the portfolio were purchased in June 1998 by a joint venture consisting of General Growth Properties Inc., the second-largest owner of regional malls, and Ivanhoe, a Canadian property management, development and investment company and retail member of the Caisse Real Estate Group that focuses on the shopping center and retail business.

The remaining four malls in the portfolio were purchased in a separate transaction, also in June 1998, solely by General Growth Properties. The triple-A-rated tranche will have an anticipated term of five years and an approximate face amount of $380.5 million.

The assets have generally undergone recent renovations, feature diverse tenant rosters, and are generally dominant centers in their trade areas. With a loan-to-value ratio of 65% and an amortization schedule of 30 years, this transaction is said to have a lockout of 12 months.

Banc of America Securities will also be working on a single-asset deal for $220 million, with The America's Mart, located in Atlanta, as collateral. The Mart is a 3.9 million square foot wholesale market center.

Additionally, Teachers Insurance & Annuity Association-College Retirement Fund is preparing a $890 million fixed-rate sale, underwritten by Merrill Lynch & Co., with the help of Credit Suisse First Boston.

The securities, which may be sold next week, are backed by loans on 15 malls across the country and a movie theater in Arizona. The loans were made to Simon Property Group Inc. and Rouse Co.

A $500 million triple-A-rated class with an average life of about six years is the largest portion of the sale, sources say. The sale is said to be structured as a Financial Asset Securitization Trust, or FASIT, for taxation purposes.