Goldman, Citigroup Planning First 2012 Commercial Mortgage Deal

Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) are planning to market about $1 billion of bonds backed by commercial property loans as soon as next week as demand for the debt recovers amid optimism the U.S. economy can withstand Europe’s fiscal crisis.

The deal will probably be the first of its kind for 2012, according to people familiar with the offering, who declined to be identified because the transaction hasn’t been announced. The New York-based banks last sold similar debt in September, when they issued $1.7 billion in securities tied to shopping malls, hotel and office mortgages, according to data compiled by Bloomberg.

Banks pulled back from making new loans to package into bonds in July as Europe’s debt crisis roiled credit markets and sent relative yields soaring. Originations have since picked up, according to a Standard & Poor’s report last month. The ratings company is forecasting $35 billion in 2012 sales.

Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment. Scott Helfman of Citigroup, also in New York, declined to comment.

The extra yield investors demand to own top-ranked commercial-mortgage bonds rather than Treasuries has declined 85 basis points to 238 basis points since Oct. 4, when it rose to a 20-month high, according to Barclays Capital CMBS AAA Super Duper Index. The spread expanded from the 2011 low of 178 basis points, or 1.78 percentage points, in April.

“Despite global concerns, people are ready” for a new deal, said Ed Shugrue, CEO of New York-based commercial mortgage bond investor and special servicer Talmage LLC. “The market wants to transact.”

Attracting New Buyers

Bankers have retooled offerings sold since August by boosting investor protection on the safest classes and registering the debt with the Securities and Exchange Commission to attract new buyers after demand shriveled amid the spreading European debt turmoil. The AAA portion of the Goldman/Citigroup deal should move “briskly,” Shugrue said, speaking in an interview at the Commercial Real Estate Finance Council’s annual convention in Miami.

Bank forecasts for commercial-mortgage bond sales in 2012 range from Wells Fargo Securities LLC predicting $25 billion to UBS AG and Credit Suisse Group AG estimating as much as $45 billion. Wall Street banks arranged about $28 billion of the debt last year, compared with $11.5 billion in 2010, Bloomberg data show. Issuance peaked at $232 billion in 2007, the data show.

The slowdown in lending was visible in the third quarter last year as fewer loans paid off than in the first two quarters, Standard & Poor’s said in a Dec. 19 report. About 56 percent of loans paid off at maturity in the third quarter, down from more than 67 percent in the prior three-month period, according to the New York-based rating company. A lack of new sales chokes off funding to borrowers with debt coming due.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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