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Opinion

CMBS: Building blocks

DDR and Fortress provide a glimmer of hope for commercial real estate.

Good news in the commercial real estate market has been hard to come by of late. But there was a glimmer of hope in the US market last month with the launch of a new CMBS transaction – the first in the US market for nearly 18 months. The CMBS market has been among the worst affected by the crisis, and the outlook for the commercial property sector in the country remains unremittingly grim. It is hardly surprising, therefore, that when the first post-crisis deal, a $400 million three-tranche transaction from US Reit Developers Diversified Realty (DDR) closed, protagonists dared to hope that it could be the start of a turnaround. And when, just days later, Fortress Group announced plans to issue a $460 million trade backed by commercial properties in Florida via Bank of America, there was a real sense that the tide might be turning.

One real estate specialist told Euromoney in August: "There has been a whiff of activity and everyone’s hopes are pinned on CMBS." Arranged by Goldman Sachs, the five-year DDR deal consists of a $323.5 million triple-A tranche, a $41.5 million double-A tranche and a $35 million single-A tranche. The triple-A notes (which account for 80% of the deal) are Talf-eligible – the first new CMBS issuance to be so since the programme was introduced a year ago.

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