Sales of commercial mortgage-backed securities are surpassing analysts' expectations for 2013. In January, Barclays forecast $60 billion in sales this year, but issuance is expected to exceed $80 billion, analysts said.
The commercial mortgage-backed securities market remains a good investment despite recent losses spurred by concerns over the future of the Federal Reserve's bond-buying program, said Prudential Financial's Michael Lillard. "You've seen a big overreaction to the Federal Reserve," he said. "We really think it's a situation where commercial real estate is pretty solid."
Commercial mortgage-backed securities have been popular with investors for some time, largely because of their relatively high yields compared with other fixed-income investments, but questions are being raised about whether the pricing reflects the full risk of default. Trepp reported that 9.71% of commercial mortgages underlying CMBS issues were at least 30 days delinquent in November. In October 2008, the delinquency rate was below 1%.
When financial markets stalled years ago, commercial mortgage-backed securities started to come with an "operating adviser," a sort of watchdog to look out for investors. Now, those advisers have lost their authority. They used to be able to get rid of a servicer based on their own judgment, whereas now they need investor approval. Operating advisers also no longer have access to all kinds of information.
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.