Bank of America Corp. and JPMorgan Chase & Co. sold $650 million of bonds tied to a loan on One Bryant Park, an office tower in midtown Manhattan.
The top-rated 10-year securities yield 150 basis points more than the benchmark swap rate, according to a person familiar with the offering who declined to be identified because terms aren’t public. A basis point is 0.01 percentage point.
The issue was marketed with a spread of 155 basis points over swaps. A tighter spread reflects increased demand for commercial-mortgage backed securities linked to new loans with conservative terms.
The issue marks this year’s third sale of new commercial- mortgage-backed securities containing loans without government backing, bringing the 2010 total to about $1.67 billion, according to data compiled by Bloomberg. Sales halted in 2008 as credit markets froze, choking off funding to property buyers. Even with government aid, only $3.04 billion of the debt was issued last year, compared with $11.2 billion in 2008 and a record $232.4 billion in 2007, the data show.
During the sales peak, commercial-mortgage bonds were sold that were as large as $7.6 billion and bundled as many as 300 loans for real estate across the U.S.
Banks have been slow to write new loans to package for sale as many borrowers struggle to pay off their existing mortgages with property prices down 41 percent from the October 2007 highs, according to Moody’s Investors Service. Also, it takes several months to accumulate mortgages to be bundled into bonds, making some banks hesitant to write the loans without a means to protect against price swings on the debt.
Spreads to Treasuries
Royal Bank of Scotland Plc’s $309.7 million April sale was the first offering to contain mortgages from multiple borrowers since June 2008, Bloomberg data show. JPMorgan sold $716.3 million of bonds backed by pooled loans on June 11.
Top-rated bonds backed by commercial real estate yield about 2.88 percentage points more than Treasuries, compared with more than 7 percentage points more than benchmarks a year ago, according to a Barclays PLC index.