This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Commercial Real Estate Gets a Fed Jolt

NEW YORK ( TheStreet) -- The Federal Reserve Bank of New York's sale of $7.5 billion of once-toxic commercial real estate debt last week is being applauded by investors as a slam dunk that may revive the moribund sector.

"It was very well received," said Edward L. Shugrue III, CEO of commercial real estate advisory firm Talmage. "It was a thoughtful and adroit move by the Fed and the timing was impeccable."

Last week the Fed said that it had sold an entire portion of American International Group's (AIG - Get Report) debt -- known as MAX CDO" -- to a group of bidders that included Barclays Capital (BCS) and Deutsche Bank (DB - Get Report). The CDO (short for collateralized debt obligation) consisted of a large bundle of commercial mortgage-backed securities (CMBS) debt wrapped up into a single security that eventually went south on AIG.

The MAX CDO was purchased away from AIG during the height of the financial crisis, and the sale is part of a bigger government auction of AIG debt taken on by the Fed called the Maiden Lane III transactions.

Shugrue said the sale of MAX CDO -- and the subsequent flood into the commercial real estate market of its parts as Barclays and Deutsche Bank break it up -- proves that commercial real estate debt may be ready for a comeback as investors search for higher yielding products.

"Until this week the net supply of CMBS has been shrinking, but this sale proves that there is rich demand across the sector," Shugrue said. "The risk trade is on, and banks, money managers and hedge funds were eager to snap this up."

A report issued by Barclays last week echoed Shugrue's assertion that investors were ready to take on more commercial real estate debt. "For this week at least, it looks as if the CMBS market has been able to take down much of this new supply with little effect on prices."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AIG $57.43 0.00%
DB $33.30 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%
GOOG $524.05 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs