This month Freddie Mac sold $734.5 million in commercial mortgage-backed securities, with more than 80% of the loans for student housing owned by landlord Kayne Anderson. The deal highlights investors' rising interest in student housing, once considered an alternative asset class.
Economic growth is driving demand for commercial real estate space, and constrained supply is allowing owners to command higher rents, says a Nomura Securities report. As a result, the commercial mortgage-backed securities market is expected to continue flourishing in 2015. Other analysts are also upbeat, noting variations in expected performance among different property types and geographic markets.
Commercial real estate-owned dispositions are rising as banks take advantage of rising valuations, according to Fitch Ratings, with the percentage of REO assets in its delinquency index exceeding 50% for the first time. Commercial mortgage-backed securities delinquency rates are trending down.
Deutsche Bank significantly reduced yields on some of its $941 million commercial mortgage-backed securities offering as demand for higher-yielding bonds increased. The deal indicates that investors are becoming more comfortable with the economic and housing recovery. "Investors have zeroed in on CMBS as one of the few remaining fixed-income sectors offering yield," said Chris Sullivan, the U.N. Federal Credit Union's chief investment officer.
A financial-regulation bill passed by the House last week contains an exception that lets banks effectively pass along all risk associated with commercial mortgage-backed securities issues. One part of the bill requires banks to retain 5% of the credit risk when commercial mortgages are packaged as CMBS. Another part of the bill provides an exemption when an investor in noninvestment-grade parts of the offering provides due diligence on all individual loans.