Monday, September 26, 2011

CMBS in a Top Position when Risk-On Trade Returns

From Chris DeReza @ Bloomberg (sorry no link):
Sept. 26 (Bloomberg) -- As Treasury yields hit new lows, investors should see even greater value in CMBS spreads that still provide one of the highest AAA-rated yields available above 3%, Amherst debt analysts led by Darrell Wheeler write in client note.
  • CMBS AAA legacy spreads have given up most of 2011 rally, moved from S +175bps to +325bps
  • Have underperformed IG corporate spreads that are out only 15bps in second half of 2011
  • This is relative to CMBS AAA widening, which is more in line with riskier high yield spread widening of 196bps: Wheeler
  • Buying earlier last week suggested investors are questioning how much European crisis should affect U.S. economy
  • "When investors start to move money from the sidelines and back into risk assets this dislocation should put CMBS bonds at the top of the shopping list as they provide one of the last remaining relative yields in an uncertain economic environment": Wheeler
  • 30% enhancement of legacy deals withstands default scenarios in any double dip recession projection while “simplicity of the credit math is compelling"


Anonymous said...

The “2007 Factor” Seen in Investor CMBS Preference: Barclays 91) ☆
• With unfolding of European debt crisis, more difficult to receive necessary
approvals to trade 2007 bonds
• New issue CMBS loans are now typically underwritten to withstand defaults
for the initial 2-yrs in the trusts with all necessary reserves in place,
while 2007 has the highest delinquency print at 11.4%
• New deals have fewer loans, making them easier to model and re-underwrite,
attracting a wider investor base
• Despite all of the above, many factors favor 2007 dupers and “should not be
overlooked": Tcherkassova
• In the current low rate environment, demand for ‘‘spreadier’’ paper should
pick up
• 2007 deals are already four years down the seasoning curve, underlying loans
have been able to sustain a major recession
• Those loans that are still current are likely to be more resistant even if
the economy experiences further stresses: Tcherkassova

Concrete Jungle said...

and from Alan Todd, also posted by DeReza - I'm glad DeReza is now at Bloomberg...

By Christopher DeReza
Sept. 26 (Bloomberg) -- CRE fundamentals improved over past
several mos, CMBS analysts led by Alan Todd write in note.
• Likely to “drift slightly higher” in coming mos, particularly for loans originated during the peak of market
• Usually several mos before changes show in performance metrics
• Important to understand not all loans within a vintage will perform similarly: Todd
• Performance tiering by loan size, property type and location “becoming increasingly evident": Todd
• Moody’s announced this week that commercial property prices, as measured by the CPPI, increased 5% in July
• Digging more deeply ‘‘indicates significant variation exists": Todd
• Prices of properties ‘‘in different locations and of differing quality recover at markedly different rates": Todd
• Many properties in top-tier metropolitan areas are within 20% of their peak prices, while distressed assets in tertiary markets are still at levels 60% below where they priced in 2007: Todd

crabsofsteel said...

except for the bloomberg guy, these analysts work for institutions which are net LONG. Do you think you will ever see a research piece questioning the wisdom of interest-only lending to 60 people whose credit you don't know?