Europe's commercial mortgage-backed securities market has made a few false starts since the global financial crisis. However, strong demand for and broad syndication of a new CMBS deal called Taurus 2013 suggests that CMBS might be on the verge of returning as a mainstream product.
Spreads in the commercial mortgage-backed securities market in the U.S. tightened as Europe negotiated a resolution to its sovereign-debt crisis, and investors are returning to the market. "We have really seen a number of clients return to legacy assets," a CMBS trader said. For a while, CMBS was lagging competing asset classes pretty dramatically. It kind of led the way down and then, when high yield and other asset classes started to recover, our market really lagged. Today, that has really changed."
More commercial mortgages in Europe are set to mature this year than last year, and refinancing is expected to be a struggle for many. The situation means extension risk likely will be a defining theme for the European commercial mortgage-backed securities market. Concerns are mounting that the CMBS market will undergo its first note event of default.
Europe's commercial mortgage-backed securities market saw an increase in legal and structural issues during the course of the past week. The bad news follows steep value declines and ratings agency downgrades.
Westpac Institutional Bank is focusing on the retail bid to revive the commercial mortgage-backed securities market in Australia. "The retail bid has immense potential ... because investors are trying to beat the rate on bank deposits which has more than halved over the past year," said Nicholas Chaplin, an executive at Westpac Institutional.