CMBS issuance to top $40 billion in 2011
Commercial mortgage-backed securities are gaining steam with $9 billion issued in the first four months of the year and $40 billion expected by the end of 2011, according to Jones Lang LaSalle (JLL). Jones Lang LaSalle analysts point to rising rental rates in key markets and a capital markets recovery that has been largely driven by an improving economy as reasons for a spike in confidence within the commercial real estate segment. Other factors include higher corporate profits, improved expectations for more hiring and the understanding the Federal Reserve's quantitative easing will end in June but the federal funds rates will not rise, according to Jones Lang LaSalle. Analysts said rents rose in 21 of the 44 markets surveyed from a year earlier, indicating commercial real estate is becoming more attractive to investors. "The economic fundamentals influencing the return to a robust trading market in commercial real estate are improving quickly, and that is going to push the level of asset trades to a new post-recession high, up near 60% in 2011," said Jay Koster, president of Jones Lang LaSalle, Americas Capital Markets. "Given the improvements underway, we’re revising our 2011 global transaction volume forecast upward from an initial expectation of $380 billion to $440 billion this year." Bank of America Merrill Lynch analysts recently said with the sharp drop in inflation expectations, the firm believes CMBS subordinate bonds issued under the Term Asset-Backed Securities Loan Facility, or TALF, are positioned to recover some or all of the price declines they've experienced in recent months. "We reiterate our recommendation to buy CMBS AMs, viewing them as especially attractive at current levels," BofA Merrill Lynch analysts said in a report. Write to: Kerri Panchuk.