Wall Street Wagers on CMBS Stability to Forecast Sales Increase via San Francisco Chronicle

Wall Street banks are wagering that commercial-mortgage bond values will stabilize in 2012, enabling an increase in sales that Credit Suisse Group AG and UBS AG have said may reach as much as $45 billion this year.

Issuance of $40 billion this year "is not out of the realm of possibility, especially if we get some stability coming out of Europe," Chris Callahan, head of commercial-mortgage bond trading at Credit Suisse, said today in an interview at the Commercial Real Estate Finance Council's conference in Miami. "It's going to be a bumpy ride. But in the current rate environment, investors are looking for relatively safe incremental yield, which should drive buyers to CMBS."

The European crisis all but shut down the commercial- mortgage backed securities market in the fourth quarter, said Steven Schwartz of Torchlight Investors, who said in an interview that the market was "unrealistically optimistic" at this time last year.

Relative yields on top-ranked debt linked to skyscrapers, office parks, shopping malls and hotels, which soared to a 20- month high of 323 basis points more than Treasuries in October, have declined amid signs the U.S. economic recovery is strengthening. The spread was 239 basis points, or 2.39 percentage points, on Jan. 6, according to a Barclays Plc index.

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