JPMorgan Chase & Co. (JPM:US) is leading banks preparing bond offerings tied to commercial property loans as Wall Street seeks to offload mortgages stockpiled during the past two months.
The lender will issue securities linked to debt ranging from a DoubleTree by Hilton hotel in Queens, New York to a mall in Louisville, Kentucky, according to a regulatory filing. Morgan Stanley (MS:US), Bank of America Corp. (BAC:US), Barclays Plc (BARC) and UBS AG (UBSN) are also planning sales, according to people familiar with the offerings who declined to be identified because the deals haven’t been announced. JPMorgan’s transaction may be marketed as soon as next week, the people said. Spokesmen for the banks declined to comment.
Wall Street banks have been challenged by price swings of the debt as Europe’s fiscal imbalances fuel volatility, making it hard to offer property owners consistent terms. The extra yield investors demand to own top-ranked commercial-mortgage bonds instead of Treasuries soared to 210 basis points, the highest in more than three months, on June 4, according to a Barclays index. A basis point is 0.01 percentage point.
“For the CMBS market to be fully functional as a first choice for borrowers, we need to get to a point where there is more consistency in the terms that originators can offer and deliver,” Scott Singer, a principal at the Singer & Bassuk Organization LLC, a real-estate firm that represents property owners and developers arranging financing, said in an interview last month.
Wider spreads can eat into profit margins on commercial- mortgage bond offerings, hindering new lending and choking off funding to borrowers with loans coming due. More than $30 billion in the debt matures this year, Bloomberg data show.
Royal Bank of Scotland Group Plc and Wells Fargo & Co. sold top-ranked debt maturing in about 10 years to yield 140 basis points more than the benchmark swap last week. In April, the spread on similar newly issued debt was 115 basis points, according to data compiled by Bloomberg.
Banks have arranged about $11 billion of the deals this year, compared with $28 billion in all of 2011, Bloomberg data show.
Sales of commercial-mortgage bonds reached a record $232 billion in 2007, helping fuel a boom in property prices, according to data compiled by Bloomberg. Issuance plummeted to $12.2 billion in 2008 as souring subprime-home loans infected credit markets. The market stayed shut until November 2009, choking off funding to borrowers with debt coming due. Banks arranged $11.5 billion in 2010, Bloomberg data show.
Forecasts for 2012 issuance range from Wells Fargo’s $25 billion to Credit Suisse Group AG’s projection of as much as $45 billion.
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