The market for commercial mortgage-backed securities is changing, again.
The latest incarnation is called CMBS 3.0, and it appears more buffered from macroeconomics than earlier deals.
But more importantly, despite trading losses, JPMorgan Chase [stock JPM][/stock] is bringing one such CMBS to market. It's a gutsy move; a more bearish issuer would likely postpone new deals. How it prices will show whether investors are concerned with the lasting impact of the recent trading losses, now approaching $3 billion.
These CMBS 3.0 deals are being characterized by higher credit enhancements, though with lower coupons. Institutional investors are currently split from the (so far, lacking) B-piece buyers. Demand is strong in the former, not so much the latter.
Further, more and more, the granularity that characterized CMBS 2.0 is fading.
The recent JPMorgan Chase Commercial Mortgage Securities Trust 2012-WLDN 3.0 is a good example. The deal is small: $270 million. The top AAA tranche credit enhancement approaches 20%, according to the Morningstar presale report. The entire deal is wrapped around the tenant at the Walden Galleria located in Cheektowaga, New York, which is a suburban community five miles east of downtown Buffalo.
Collateral research is through the roof on these deals. Do shoppers and tourists notice all the suits walking around their malls and hotels working on competing credit ratings?
The relative trading stability in the CMBS market will only boost the CMBS 3.0 concept. However, what should be on every commercial players watch list is the news that the FBI may investigate the JPM losses. It is always concerning when an agency that can throw you in jail decides to get involved.
The big test, though we may not get there, will be how well the CMBS 3.0 market can withstand employees of an issuer being subjected to the long arm of the law.