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Capital Markets

Will these structures stand the test of time?

Investor demand for US commercial property-backed debt is rapidly increasing, with strong bids coming from Europe and Asia. An exciting new range of structured finance and derivatives products is on offer, but issuers and investors might be biting off more than they can chew. Kathryn Tully reports.

Credit Suisse develops new property derivatives


INVESTORS MUST SEARCH hard to find a decent return these days, hence the attractiveness of property. In particular, US commercial real estate is hot, and it is not just Donald Trump who will tell you that. According to Colliers International’s 2006 Real Estate Forecast, the sector will experience another blockbuster year in 2006, with continued growth in office, industrial and retail real estate. Even if the US economy grinds to a standstill, the commercial real estate consultancy predicts that there will be enough momentum to carry the market through to mid-year at least. Colliers argues that the strongest seller’s market ever has built up in the first few months of this year, with demand up across all sectors, making vacancies increasingly valuable.

Cash is flowing into real estate debt and equity directly as investors are spurred on by poor returns in other sectors; portfolio allocations to the property market for diversified investors are also increasing. It is somewhat surprising, then, that until very recently it has been difficult to take a view on commercial property-backed debt in the structured finance and derivatives markets without owning the cash securities.


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