Increased global market volatility spells trouble for commercial property borrowers

May 24, 2012 09:30AM

Wall Street’s affinity for commercial mortgage-backed securities is waning, according to Bloomberg News, and that could make it more difficult for developers and investors to obtain financing for their deals.

The bond market was more volatile last week than at any point since January, amid renewed fears stemming from a European debt crisis. That volatility makes it more difficult for CMBS issuers to determine the demand for their securities. As a result, the spread between CMBS yields and Treasury note yields are increasing and indexes tied to lower-rated bonds are falling to their lowest levels in six months.

Banks have arranged about $10 billion in CMBS sales this year, according to Bloomberg, a higher rate than the $2.3 billion offered in the fourth quarter of last year, but below last year’s third-quarter rate, when $8.3 billion worth of notes were sold.

If market volatility continues to scare away CMBS issuers, then that would cut off borrowers from a huge lending source just as $30 billion worth of property debt matures this year. Andrew Solomon, a managing director at Angelo Gordon & Co. said “the volatility is going to be here for years” because “correlation across all asset classes is much higher now than it was pre-Lehman.” [Bloomberg]