Rally in CMBS Buoyed as Angelo Gordon Leads ... - Rankin Realty

Bondholder confidence is growing that
U.S. commercial property is bottoming following the recovery in
residential housing.

Angelo Gordon Co., LibreMax Capital LLC and Brevan Howard
Asset Management LLP are among firms that snapped up commercial
mortgage-backed securities as some of the riskiest debt jumped
as much as 13 percent in July to 68 cents on the dollar.

Demand for bonds linked to offices, skyscrapers and
shopping malls is the highest in four years as commercial
properties in the largest cities across the U.S. show signs of
improvement. Late payments on mortgages bundled into securities
fell last month for the first time this year and property values
have climbed as much as 41 percent from their January 2010 low.
Funds are piling in as Federal Reserve efforts to reduce
borrowing costs, revive housing and stimulate the economy fuel
demand for higher-yielding debt.

?The rally is just beginning and it?s still cheap so
people aren?t being shy,? said Anthony Barkan, a principal at
investment firm Seer Capital Management LP in New York, which
oversees about $900 million. ?The fundamentals are really good.
Revenues are up in all sectors over the last year.?

Seer Capital, run by former Deutsche Bank AG executives
Phil Weingord and Richard D?Albert, has been investing in CMBS
since the firm started managing money in 2009.

Sovereign Crisis

Investors added holdings even as Europe?s leaders grappled
with the sovereign debt crisis and slowing U.S. economic growth.
The Fed said yesterday it will ease policy further if necessary
as unemployment persisted at 8.2 percent.

Angelo Gordon, the $24 billion firm started by John Angelo
and Michael Gordon, is planning a new residential and commercial
mortgage fund, according to a presentation, a copy of which was
obtained by Bloomberg News.

?After several years of continued declines in housing and
commercial real estate pricing, Angelo Gordon is now cautiously
optimistic that a nascent recovery is beginning in these
markets,? the New York-based firm said in the July 26
presentation. It manages several funds and separate accounts
that already invest in commercial and residential mortgage
securities, the firm said in the presentation.

LibreMax, the $1.7 billion investment firm co-founded by
former Deutsche Bank trader Greg Lippmann, has been increasing
CMBS holdings this year, according to letters sent to investors.
Holdings had increased to 12.7 percent of its assets at the end
of June. The hedge fund said in February that it started the
investments following the hiring of Michael McLarney, previously
of Barclays Plc.

Lippmann, who gained fame for his wagers at Deutsche Bank
against subprime mortgage securities before the housing market
collapsed, has also bet on the $1.1 trillion market for U.S.
home loan bonds without government backing.

Subprime Bonds

Gains on subprime-mortgage bonds issued from 2005 through
2007, the years that produced the most defaults leading to the
worst financial crisis since the Great Depression, have rallied
more than 25 percent this year, according to Barclays index
data. Returns accelerated amid signs the residential property
market is beginning to climb back from the worst collapse since
the Great Depression.

Home prices in 20 cities fell 0.7 percent in May from a
year earlier, the smallest 12-month decline since September
2010, according to the SP/Case-Shiller index. Prices increased
0.9 percent from April when adjusted for seasonal variations.

Brevan Fund

Brevan, the $36 billion investment firm, started a fund in
May to invest in all types of CMBS. It raised money from the
Pennsylvania Public School Employees? Retirement System to buy
bonds created during the property boom leading up to 2007,
Bloomberg reported in June.

?Most people are on board the bullish train, at least for
now,? said Harris Trifon, a Deutsche Bank analyst in New York.
?The interest rate market is reset so low that its forced
fixed-income investors to look for higher-yielding assets.?

Interest jumped this year as the Federal Reserve Bank of
New York auctioned off commercial property debt it assumed
during the 2008 bailout of American International Group Inc. (AIG) The
sales from the Fed?s Maiden Lane programs helped the district
bank recoup loans extended during the rescue.

?The Maiden Lane successful sale process is probably the
most important with respect to market confidence,? said Chris Skardon, partner at $250 million Charlotte, North Carolina-based
Gorelick Brothers Capital LLC. ?If you feel like we?re getting
close to the bottom, then it?s a reasonable time to enter back
into the market,? said Skardon, whose firm is a dedicated fund
of mortgage hedge funds invested in about 20 managers, including
those in CMBS.

Late Payments

Though late payments on the debt fell in July, they rose to
records this year as loans from the boom era failed to
refinance, according to Wells Fargo Co. (WFC) Delinquencies declined
11 basis points to 9.34 percent last month, marking the first
decline since January.

Property values are also staging an uneven recovery, with
buildings in the largest cities recovering 41 percent from
January 2010, compared with an 18.7 percent gain for those in
smaller cities, according to the Moody?s/RCA Commercial Property
Price indexes.

Slowing economic growth and the ongoing European debt
crisis may knock the rally off course, according to Deutsche
Bank?s Trifon.

?There is the potential for a bad ending in the very near
future,? he said.

New Issue

For now, demand for newly created bonds is also rising,
helping Wall Street arrange loans for landlords needing to
refinance. Wells Fargo and Royal Bank of Scotland Group Plc (RBS) last
month issued top-ranked securities maturing in about 10 years
yielding 120 basis points more than the benchmark swap rate, the
narrowest spread since April, according to Deutsche Bank data.

Relative yields on top-ranked commercial mortgage bonds
narrowed 24 basis points last month to 162 basis points, or 1.62
percentage points, according to Barclays index data. The spread
is the least since at least January 2008.

?The fundamentals of CMBS should hold up even if we have a
weakening economy and a downtick in GDP as long as we stay out
of recession,? said Barkan of Seer.

To contact the reporters on this story:
Sarah Mulholland in New York at
smulholland3@bloomberg.net;
Kelly Bit in New York at
kbit@bloomberg.net

To contact the editors responsible for this story:
Christian Baumgaertel at
cbaumgaertel@bloomberg.net;
Alan Goldstein at
agoldstein5@bloomberg.net;
Rob Urban at
robprag@bloomberg.net;

Enlarge image

Rally in CMBS Buoyed as Angelo Gordon Leads Investors

Tomohiro Ohsumi/Bloomberg

Demand for bonds linked to offices, skyscrapers and shopping malls is the highest in four years as commercial properties in the largest cities across the U.S. show signs of improvement.

Demand for bonds linked to offices, skyscrapers and shopping malls is the highest in four years as commercial properties in the largest cities across the U.S. show signs of improvement. Photographer: Tomohiro Ohsumi/Bloomberg

Article source: http://www.bloomberg.com/news/2012-08-02/rally-in-cmbs-buoyed-as-angelo-gordon-leads-investors-mortgages.html

Source: http://www.rankinrealty.net/2012/08/rally-in-cmbs-buoyed-as-angelo-gordon-leads-investors-mortgages/

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