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.
A recent $400 million sale of commercial-mortgage bonds by Developers Diversified Realty helped reopen the securitization market. Bank of America is planning a $460 million deal of commercial-mortgage bonds, but unlike the DDR deal, BofA's is not eligible for the Federal Reserve's Term Asset-Backed Securities Loan Facility. Insiders said the deal marks another positive sign for the commercial-mortgage market.
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.