Wall Street returns to CDOs, as demand for commercial RE debt grows

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.

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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