From another thread. It contains a lot of economic data points that look significant.
Commercial-Mortgage Bond Sales May Reach 12-Year Low (Update1)
By Sarah Mulholland
June 26 (Bloomberg) -- Sales of bonds backed by commercial real estate loans may fall to the lowest level since at least 1996 as investor demand for the debt slumps.
Commercial-mortgage backed securities offerings dropped to $12.2 billion in the first half of the year, from about $137 billion in the same period of 2007, according to JPMorgan Chase & Co. Analysts at the firm, Moody's Investors Service and Royal Bank of Scotland Group Plc cut their forecasts. JPMorgan predicts sales will fall to $20 billion this year from the record $237 billion in 2007 and the lowest since 1996.
The decline shows the Federal Reserve's seven interest-rate cuts since September had limited success in reviving the market for securities derived from real estate assets after the collapse of subprime mortgage-related bonds. Banks and financial firms, reeling from $400 billion in writedowns and credit losses, are also less willing to make new loans.
``It's not at all unreasonable to think that we may be done for the year, unless something changes very rapidly,'' said Jan Sternin, a senior vice president at the Washington-based Mortgage Bankers Association. Wall Street ``is not originating new loans, and there is no reason to believe it's going to change any time soon,'' she said.
Spreads Widen
Sales of commercial-mortgage debt backed by U.S. skyscrapers, shopping malls and industrial plants, whose monthly interest payments pay bondholders, plummeted as the collapse of the subprime market last year caused investors to flee all but the safest government assets.
In Europe, 3.6 billion euros ($5.63 billion) of the securities were sold this year, a tenth of the 33 billion euros issued in the same period a year earlier, according to data compiled by Deutsche Bank AG.
U.S. commercial-mortgage backed debt rated AAA and maturing in 10 years yields 154 basis points more than benchmark swap rates, compared with 30 basis points a year ago, Lehman Brothers Holdings Inc. data show. A basis point is 0.01 percentage point.
Spreads widened to more than 300 basis points in March, just before the Fed backed New York-based JPMorgan's purchase of Bear Stearns Cos.
``This market is coming back, it's just going to be a little slower than we had hoped for six months ago,'' said Derrick Wulf, a money manager at Dwight Asset Management in Burlington, Vermont.
Sales Slump
RBS forecasts sales may be as low as $15 billion. Moody's estimates less than $20 billion, down from a forecast of $100 billion made in late 2007 and $35 billion last month. Citigroup Inc. analysts cut their projection in March to a range of $25 billion to $40 billion, from $86 billion to $100 billion at the beginning of the year.
In the most recent deal, Bank of America Corp. and Barclays Plc sold $1.29 billion in debt backed by commercial mortgages on June 19. The largest AAA portion was priced to yield 147 basis points over the benchmark swap rate.
Concern that the U.S. economy is contracting also weighs on commercial real estate.
Investment in commercial property fell 70 percent in the first quarter from a year earlier as banks curtailed credit and slower economic growth curbed demand for office and industrial space, according to the National Association of Realtors. There's a ``strong link'' between occupancy rates and employment, New York-based Lehman analysts Aaron Bryson and Tee Chew wrote in a June 24 report.
`Backing Up The Truck'
Banks aren't as willing to lend money to investors seeking to buy the debt, making it harder to boost returns using borrowed cash, Alan Todd, the head of commercial mortgage-backed securities research at JPMorgan in New York, said.
``Investors view the world in a less leveraged framework, and are demanding higher returns on the securities they buy,'' Todd said.
Delinquencies of less than 1 percent are attracting some investors. The percentage of commercial mortgages that have payments 60 days or more late is 0.46 percent, compared with 0.26 percent a year ago, according to data from Trepp LLC, a New York- based research firm.
``I am a big believer in backing up the truck and buying commercial-mortgage backed securities'' as a weaker dollar draws foreign property buyers, BlackRock Inc. President Robert Kapito said at a conference on June 24. New York-based BlackRock is the largest publicly traded fund manager in the U.S.
Swings in spreads are deterring some investors from buying, said Kent Born, a senior managing director of the commercial lending group at PPM America Inc. in Chicago. The firm has more than $72 billion in assets under management in the U.S.
``We have a chicken-and-egg problem,'' Born said. ```We need a steady stream of new deals, among other things, to reduce volatility. But to have a steady stream of new deals, we need reduced volatility.''
To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net
Last Updated: June 26, 2008 04:18 EDT
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