The market for commercial real estate collateralized debt obligations (CRE CDOs) is showing new signs of life, Fitch Ratings says in a new report. After a more than three-year absence, Fitch says it has begun receiving inquiries about new CRE CDOs.
The collateral being contemplated is ranging from seasoned commercial mortgage-backed securities (CMBS) to newly originated commercial real estate loans to a hodgepodge of commercial real estate debt.
The variety in collateral will, in turn, result in a variety of ratings, says Fitch Group Managing Director Huxley Somerville.
‘New-issue CRE CDOs backed by whole loans may look very similar to traditional multiborrower CMBS and, therefore, may be able to achieve high investment-grade ratings,’ Somerville says.
However, he adds, ‘CRE CDOs backed by a mix of lower-quality loans or bonds may only be able to achieve ratings a notch or two above the level of their average asset rating, if they are even ratable at all.’
The transactions Fitch has seen in recent months contain a broad range of collateral types, including seasoned B-notes and mezzanine loans; real estate investment trust debt; and both seasoned multiborrower and single-borrower CMBS bonds.
The full report, available on Fitch's website, is titled ‘CRE CDOs Resurface: Separating The Wheat From The Chaff.’
