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CMBS makes a comeback

Over the first six weeks of the year some $2 billion in US CMBS was issued by financial institutions, and analysts predict as much as $50 billion in deals by the end of 2011. Marcus Giancatterino, head of real estate finance at Citi, says that investors have become more comfortable that commercial real estate values do not have much more downside. "There wasn’t as much frothy underwriting as in residential mortgages, and with interest rates low, borrowers have continued to service their commercial real estate debt. With high yield and corporate investment grade having recovered, it is a natural place for real money accounts such as insurance companies and pension funds to start putting money into."

Spreads on new originations of commercial mortgages have recovered substantially since the worst of the crisis in late 2008 and early 2009. According to the Trepp pricing index, spreads on new commercial mortgages have fallen from 550-plus basis points at the worst part of the crisis to current spreads in the 225bp to 250bp range.

The return of liquidity is a welcome sign for the commercial real estate market, although Matt Anderson, managing director of research firm, Trepp, points out that it will not help the smaller banks that cannot use the CMBS market to sell their loans.

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