Bloomberg News

Pimco Favors Europe Commercial Mortgage Debt on Lending Recovery

June 20, 2013

Pacific Investment Management Co., manager of the world’s biggest bond fund, sees value in European commercial mortgage-backed securities on signs of a lending recovery in the recession-plagued region.

“There are opportunities in CMBS,” said Felix Blomenkamp, portfolio manager and head of the European ABS team at Newport Beach, California-based Pimco. “We see more commercial lending activity coming back to the markets,” boosting the likelihood that high-quality CMBS will be refinanced, he said by telephone from Munich last week.

Investor appetite for bonds supported by commercial mortgages is recovering from the one-two punch of the U.S. subprime collapse followed by Europe’s fiscal crisis and economic slump. Issuance of publicly-placed CMBS will rise more than six-fold to 5 billion euros ($6.6 billion) this year from the prior 12 months, Barclays Plc said in an April report.

Deutsche Bank AG, whose asset management unit has about 41 billion euros of property investments, is looking for opportunities to buy Spanish and Italian offices and shops on behalf of German institutional clients for the first time in three years.

Investment in European retail real estate jumped almost 60 percent to 5.1 billion euros in the first quarter from the same period of 2012, according to research by Jones Lang LaSalle Inc.

CMBS also look more attractive as spreads on prime residential mortgage-backed securities narrow amid an issuance lull, Blomenkamp said.

Relative Value

“We’ve seen a resurgence of CMBS,” said Chris Greener, a London-based director in the EMEA fixed-income team at BlackRock Inc. who was speaking at IMN’s Global ABS Conference in Brussels today. “The fact that a couple of deals have been done and placed throughout the capital structure, I think is very strong for our market.”

European prime RMBS sales are likely to slump 50 percent this year, according to Barclays, as central bank funding in the U.K., traditionally the debt’s largest market, discourages issuance.

To contact the reporter on this story: Rachel Evans in Hong Kong at revans43@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net


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