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) debt -- known as MAX CDO" -- to a group of bidders that included Barclays Capital (BCS) and Deutsche Bank (DB). 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."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV