A new exchange traded fund from BlackRock is the first designed to track commercial mortgage-backed securities. The market is making a comeback after imploding in the global financial crisis.
“CMBS are fixed income securities that are backed by loans on things like office buildings, retail properties, and hotels. The sector currently represents about 2% of the U.S. fixed income market,” explains Matt Tucker, head of iShares Fixed Income Investment Strategy at BlackRock.
“For investors who have a positive view on the commercial real estate market, CMBS are a way to gain exposure with less risk than real estate investment trusts (REITs),” he added at the iShares blog. “CMBS also have a compelling income component – compared to sectors that have a similar duration (a measure of bond risk), investment grade CMBS are currently offering a higher yield.”
At the peak in 2007, more than $230 billion in commercial mortgage-backed securities were originated in the U.S., according to the New York Times.
The new ETF is “a healthy sign for market that had been left for dead in the credit crisis,” writes Ari Weinberg at Forbes.com. “Like other non-Treasury credit markets, CMBS issuance fell off a cliff in 2008-2009 … The CMBS market has rallied hard, however, and some have begun to question the continued resilience of the market.”
U.S. banks increased financing for commercial real estate in the fourth quarter for the first time in almost two years, Bloomberg reports. Default rates are lower and lenders are unloading more foreclosed properties.
“Lending has been constrained by upheaval in the market for commercial mortgage-backed securities, the financing engine that drove property deals and prices to record highs in 2007,” according to the report.
“We still face significant headwinds in commercial property but the latest findings are encouraging,” Chandan Economics told Bloomberg.