Investors are investing money in bonds backed by U.S. offices, ignoring concerns about whether workers will ever fill them like they did before the pandemic.
About a third of all this year’s commercial mortgage-backed securities linked to unique properties – nearly $ 4 billion in total – have helped finance prime office towers in major city centers, according to the reports. data compiled by Bloomberg. This is despite the fact that Covid-19 has gutted the demand for office space,decimate rents and reduce valuations.
There is no consensus on when a vaccinated workforce might,if ever, come back en masse, but the industry forecast is not great. Demand for office space could drop 10% to 31%, Deutsche Bank AG analysts said Wednesday.
The Durst organization helped feed hungry investors on TuesdayCMBS $ 1.1 billion price atrefinance office buildings at 1133 Sixth Avenue and 114 West 47th Street in midtown Manhattan, with strong demand reducing risk premiums. Loan-backed bonds on reputable properties inPhiladelphia Cream,Dallas,Houston,Los Angeles and elsewhere inNew York was also sold this year.
Investors’ vigorous appetite for office tower debt may be less of a vote of confidence for the return of the urban office sector and more of a search for yield in a tight credit market environment, fund managers say.
“Many buyers of cross corporate bonds are looking for these desktop CMBS trades to get that extra return,” said Jen Ripper, CMBS investment specialist at Penn Mutual Asset Management in Horsham, Pa. “But in the near term, there is a lot of uncertainty for the urban office market, and rents, along with vacancy rates, are under pressure as leases decline. There are simply too many question marks on the safest way to bring people back. “
These securitized bonds, known as single-asset single-borrower CMBS, can offer higher yields than other corporate asset-backed bonds and paper, and are often floating rate securities, a quality attractive at a time when many expect interest rates to rise. SASB securities have built-in safeguards to protect investors in senior notes in case cash flow suffers, and are backed by high quality assets, making buyers more comfortable, especially for AAA tranches, Ripper said.
The AAA-rated tranche of Wednesday’s Durst transaction priced at 98 basis points on a 10-year paper swap-spread benchmark. This compares to a spread of just around 78 basis points on swaps for a simple A-rated average corporate bond with a term of seven to nine years, according to Deutsche Bank.
“So you can choose two full rating categories and additional basis points,” said Edward Reardon, analyst at Deutsche Bank.
Sales of SASB and so-called dealsCommercial real estate secured loan obligations will likely continue to outperform what is typically the most popular type of CMBS, known as conduits, in the second quarter, according to analysts at Bank of America Corp. various real estate sectors, including retail, hospitality and industrial real estate.
Global private label CMBS issuance stands at $ 29.5 billion this year, 19% more than so far in 2020.
“It looks like the gradual return of office workers will take place over several years, and no one knows if the occupancy rate will then reach its previous levels,” said Christopher Sullivan, director of investments for the United Nations Federal Credit Union. .
The big banks started publishing quarterly reports on Wednesday. JPMorgan Chase & Co. released $ 5.2 billion from its credit reserves,increase income. The company’s revenue in fixed income, currencies and commodities was higher than expected, up 15%, while CEO Jamie Dimon said demand for loans remained “contested.” “.
- Goldman Sachs Group Inc.reported FICC sales and trading revenue of $ 3.89 billion, up 31% from a year ago
- United Airlines Holdings Inc.shifted the majority of its $ 9 billion junk debt sales to leveraged loans, the latest company to seek more flexible financing in floating rate assets
- The leveraged loan market has seen several other adjustments, including:
- CoreLogic Inc. reduced supply to $ 3.25 billion from $ 4 billion, although prices firmed until forecast expires
- Nutrisystem Inc. has inserted several alliance changes, which have widened the prices of its deal
- Tencent delays commercialization of dollar bond deal slated for Wednesday, people familiar with the matter say, as credit markets in Asia have been troubled by the fall of one of the biggest struggling asset managers from China.
- For updates to offers, click here for the new issues monitor
- To learn more, click here to view the Credit Daybook Americas
Mergers and Acquisitions Boost Performance in European Secondary Market, Globalworth Real Estate Investments Ltd. Bonds.Takeover bids from CPI Property Group and Aroundtown.
- The company’s 2025 and 2026 bonds are the best performing in the European high-quality market
- Slovakia is the latest European sovereign to offer new debt, marketing 15-year euro-denominated debtpublish; Spain, Austria and the UK have exploited the market with longstanding issues in recent days
- Amsterdam Airport Schiphol operator has hired banks for possible two-tranche euro bondoffer
Asian dollar bonds sold on Wednesday as concerns spread over the financial health of China Huarong Asset Management Co., one of the country’s struggling debt managers.
- Debt deals slowed amid turmoil, with only Chinese brokerage Guotai Junan and South Korea’s Shinhan Bankthe marketing of dollar bonds.
- In Japan, Toshiba Corp.surged after KKR & Co. and Brookfield Asset Management Inc. explored offers for the Japanese conglomerate, increasing the possibility of it being private and reducing disclosure of information for investors.
– With the help of Allan Lopez and Jack Pitcher