Bearish mood in commercial sector

This is from the UK, but the article is about the US commercial real estate market.


By Daniel Pimlott in New York
Published: November 13 2007 02:00 Last updated: November 13 2007 02:00

"In the US we've spent 15 years building the concept of securitisation into real estate," said Eric Schwartz, joint head of Deutsche Bank's commercial property arm. "I don't think anybody is prepared to believe that the events of the last three months have changed everything."

In spite of Wall Street's hopes, the signs at the moment are not good in commercial real estate, as fears rise that a flight from commercial mortgage backed securities could be pushing commercial real estate prices lower.

Investors are increasingly betting that the booming commercial real estate market is heading for a downturn. Yields on CMBS have soared to levels not seen since the late 1990s, indicating that they are seen as riskier.

In the third quarter, the average loan was 118 per cent of the property value, according to Moody's, which includes expectations of properties incomes over several years in their calculations. That level of leverage is "really kind of creepy" says Sally Gordon head of commercial property research at Moody's.

http://www.ft.com/cms/s/0/ab0c89ca-918e-11dc-9590-0000779fd2ac.html?nclick_check=1