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First US CMBS deal just gets away

It took six weeks but 2008 finally got its first CMBS deal in mid-February, from Morgan Stanley and Bear Stearns, who sold a $1.2 billion transaction.

The deal did not come easily. The banks had to discount the AAA-rated tranche by 235 basis points over the 10-year swap rate, the widest margin ever. Guidance had been 200bp. By comparison, the same sort of deal 12 months ago would have yielded 30bp.

But bankers crossed their fingers that this pioneering effort will lead the way for other deals in a badly struggling market. Blackstone Group has been expected for some time to bring the largest ever CMBS, possibly as much as $11 billion, backed by its recently acquired Hilton Hotels portfolio.

But market analysts are not optimistic for the market this year. RBS Greenwich Capital predicts US CMBS sales will fall by 66% in 2008 to $80 billion. This slump will follow 2007 when $234 billion of new CMBS was issued. The first quarter alone produced $62 billion.

The market has tightened its belt in expectation of a slow first six months and January certainly lived down to expectations with an entirely deal-free month. Citi analysts said this is the first time that has happened in the market’s 20-year history.

As the deal went through, Merrill Lynch’s index of AAA-rated CMBS, which makes up about 75% of the market, showed a 4.7%

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