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CMBS Issuance Drops to 1996 levels

Issuance of commercial mortgage-backed securities for the first half of 2008 totaled just over $12 billion, a level last seen in the first half of 1996, Moody’s Investors Service reports. The first half issuance is also 91% less than the issuance of about $137 billion for the first half of 2007.

Not only is issuance of the securities down, the pipeline is also dry considering that conduits have to compete with portfolio lenders who are offering borrowers interest rates that are 1.5% below the rate necessary for conduit lenders to break even on deals.

Even then, nobody expects the CMBS vehicle to remain dormant forever. “Most market participants, including Moody’s, believe that the industry will survive, but in a simpler, scaled-down form. It will be a very long time, if ever, before the industry sees issuance volume in excess of $200 billion again,” the credit rating agency says.

So when will the market pick up again? There could be a modest uptick in the second half of 2008 after portfolio lenders use up the money they have allocated to commercial real estate for the year.

For a more sustained revival however, investors will need to feel comfortable with commercial real estate prices and be convinced that the worst is over for the sector.

Until the negative sentiment in the credit markets runs its course and a true bottom is discerned, investors will continue to remain on the sidelines. Considering that commercial real estate reacts to economic conditions and is a lagging indicator, it could take another year or two for investors to jump back into the game.

Source: National Real Estate Investor

 

Commercial Real Estate ain’t Residential Real Estate

The Wall Street Journal stated, despite declining property prices and the weakening economy, the nation’s commercial real estate sector appears to be holding up. According to Moody’s Investors Service, upgrades of bonds and structured products backed by U.S. commercial property mortgages outnumbered downgrades in the first six months of this year, although the vast majority of ratings actions were affirmations. Moody’s upgraded 234 portions, or tranches, of debt and downgraded 123, while affirming 1,452 tranches of such notes.

a monthly must read….

Overtime some advice and commentaries prove to be vastly more accurate and prescient than others.  One guy I follow very closely is Bill Gross, Managing Director of Pimco, a global investment management firm with more than $829.5 billion in assets.  He writes a monthly investment outlook that can be read on their website or can be downloaded on Itunes.   

You’ll find it not to be the easiest read, but well worth your time: http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/Investment+Outlook+Bill+Gross+Mooooooo+August+2008.htm