Responding to the growing demand for commercial real estate debt, Wall Street is returning to a type of security hardly seen since the collapse of the housing market: collateralized debt obligations or CDOs, Bloomberg News reported.
Sales of CDOs, which are linked to everything from hotels to shopping malls, could climb to as much as $10 billion this year — about 10 times the level of 2012 — according to the Royal Bank of Scotland Group. For instance, Redwood Trust is offering the product for the first time since the collapse of the real estate market in 2008.
But CDOs are linked to riskier assets than those found in traditional commercial mortgaged-backed secturities, such as office buildings with high vacancy rates.
“Investors are willing to go further afield in their quest for yield,” Ed Shugrue, CEO of Talmage, who oversees $2 billion of commercial property debt in New York. “With demand rich, Wall Street is scouring the cupboards to find anything with a cash flow that can be securitized.” [Bloomberg] –-Christopher Cameron