Bargain-hunters revive property bond market

Expanded: The busy mid-2000s market for commercial mortgage-backed securities (CMBS) -- bonds backed by loans on apartments, offices, stores, warehouses, hotels -- stalled in the 2008 credit freeze.

That’s one reason commercial real estate prices have collapsed and the private sector’s not building much.
“We’re starting to lead the market back,” Dan Sheehy, the Reading native who heads California-based Impact Community Capital LLC, told me Monday, after pricing the main $235 million, AAA-rated (with no credit enhancement) section of a $302 million CMBS, at a variable rate of 5.35%, or 2.25% over U.S. Treasuries.

Barclays Capital agreed to sell the bonds, backed by the safest parts of a basket of dozens of mortgages (pre- and post-2008) on low-rent apartment buildings in California and elsewhere, for Impact, a for-profit company financed by the Allstate, Farmers, Nationwide, Pacific Life, Safeco, State Farm, Teachers and 21st Century insurance companies.
The group was represented by Philadelphia lawyer David Forti and his colleagues at Dechert LP, who Sheehy said came recommended by investors at Pacific Life.

“Couldn’t have done it without them,” said Sheehy, who added he “spent four weeks on the road, going like the hammers of Hell,” pushing the deal to pension funds and other big investors to buy the bonds and help bring the property investments markets back.

Last week JPMorgan Chase & Co. sold another CMBS issue worth over $700 million, Reuters reported here. But among office, warehouse and retail buildings, "supply greatly outweighs demand," and that 's still "keeping overall vacancy rates high and rental rates on a downward trend," PricewaterhouseCoopers reported today in its Korpacz Real Estate Investor Survey. 

PwC says high-quality office and apartment properties still get good prices, and plenty of investors are hunting for discount prices down from mid-2000s highs; but no one wants cheap, high-vacancy buildings, and retail is especially weak. More at