This summer, as Europe reared its ugly head yet again, and the U.S. economy showed signs of impending recession, investors pulled back from Commercial Mortgage Backed Securities (CMBS). Recently Standard and Poor's decided against rating one of these commercial real estate-backed bond deals. Even the "safest" and senior of the tranches of debt are now expected to provide buyers with more protection than what was demanded earlier this year.
Just as only the best properties in the best locations have been fetching high sale prices while the rest of the market remains soft, the senior level CMBS debt is selling quickly, but there is little demand for the more risky securities. The recovery of the CMBS market has helped to support commercial real estate values recently. Given the ultra low interest rate environment, the returns on commercial real estate have looked relatively good, and CMBS added needed liquidity.
Although the U.S. economy isn't expected to double dip, sluggish growth will continue to weigh on business growth and the commercial real estate recovery. The "smart money" is still avoiding all but the best of assets, and even the best are paying up to borrow money now. For now Class B and Class C assets will continue their bottoming process.
Just as only the best properties in the best locations have been fetching high sale prices while the rest of the market remains soft, the senior level CMBS debt is selling quickly, but there is little demand for the more risky securities. The recovery of the CMBS market has helped to support commercial real estate values recently. Given the ultra low interest rate environment, the returns on commercial real estate have looked relatively good, and CMBS added needed liquidity.
Although the U.S. economy isn't expected to double dip, sluggish growth will continue to weigh on business growth and the commercial real estate recovery. The "smart money" is still avoiding all but the best of assets, and even the best are paying up to borrow money now. For now Class B and Class C assets will continue their bottoming process.
