Europe's commercial mortgage-backed securities sector is seeing signs of stronger activity as real estate prices rise and investors seek higher yields than fixed-income assets offer. Bank of America sold $478 million in CMBS notes this week, the biggest deal of the year. This is expected to be Europe's busiest year since 2007 for CMBS issuance.
So far, 2013 has been a good year for issuance of commercial mortgage-backed securities. Wall Street dealers have already issued $8.8 billion of the securities. "The record-setting issuance for [January] demonstrates the robust demand for CMBS and the continued recovery of the broader commercial real estate market," said Harris Trifon, Deutsche Bank's head of CMBS and asset-backed research.
The commercial mortgage-backed securities market is not as robust as it was in 2007. But considering its paralysis for the past two years, the current activity is a welcome relief for the industry. Seeding the revival were government programs such as the term asset-backed securities loan facility and the public-private investment program, which didn't process that many actual CMBS but did give institutional investors a guide to develop their own solutions.
The U.S. government's initiatives to inject new liquidity into lending for commercial real estate hit a new, powerful and unexpected stumbling block when Standard & Poor's put out a warning this week that it may well downgrade billions of dollars of CMBS issues that today carry triple-A ratings. When federal money from the Term Asset-Backed Securities Loan Facility, TALF, is used to finance CMBS investments, it is restricted to securities with triple-A ratings.