Collateralized debt obligations linked to commercial real estate are poised for a comeback, according to Fitch Ratings.
As sales of commercial-mortgage backed securities revive, inquiries about new CDOs composed of real estate debt are emerging, Fitch said in a report today. CDOs pool assets and slice them into securities of varying risk.
Sales of CDOs linked to commercial real estate debt climbed to $35 billion in 2006 from $16.1 billion in 2005, according to Credit Suisse Group AG data. Another $35 billion was sold in 2007, the data show. Offerings plummeted after the financial crisis. There have been no newly issued CDOs linked to commercial property loans since 2007, according to Credit Suisse.
“CRE CDOs backed by whole loans may look very similar to traditional multiborrower CMBS and therefore may be able to achieve high investment grade ratings,” Fitch analyst Huxley Somerville said in the report.
CDOs composed of lower quality loans or securities may not be ratable at all, he said.
Late payments on commercial property loans packaged in CDOs climbed 0.7 basis points to 14.8 percent last month, Fitch said in a May 13 report.