Issuers are attempting to draw greater distinctions between different types of offerings, said Tad Philipp, an analyst at Moody’s Investors Service.
“During the boom, CDO was the umbrella term for everything,” Philipp said in a telephone interview. “That’s not the case now.”
Bond buyers are latching on to the debt as property values stage an uneven recovery across the U.S., with large cities such as New York and San Francisco recording the biggest gains, according to Moody’s Investors Service. Commercial real estate prices have climbed 27.7 percent since bottoming in November 2009, according to the Moody’s/RCA Commercial Property Price index.
CMBS Sales
Traditional CMBS sales are poised to climb 50 percent in 2013 to $60 billion as demand soars, according to Deutsche Bank AG, and lenders are set to issue $8 billion in deals this month, the highest monthly volume in five years. The $550 billion market shut down in 2008 after a record $232 billion was sold in 2007.
Money managers putting new investment mandates to work this year have contributed to increased trading and a “sharp tightening in spreads,” Barclays Plc analysts Keerthi Raghavan and Aaron Haan wrote in a report last week.
“Cash inflows into fixed income funds have remained elevated over the last year and despite the significant tightening, CMBS remains attractive” compared with similarly rated assets, such as corporates, they wrote.
The extra yield investors demand to own top-ranked commercial-mortgage bonds rather than Treasuries has narrowed to 1 percentage point from 2.23 percentage points at the end of 2011, according to a Bank of America Merrill Lynch index, about the narrowest level since July 2007.
Shrinking yields on CMBS are pushing investors to look for higher-yielding assets, said Hill of RBS. “CRE CDOs are the next frontier.”