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Goldman Said to Lead Banks Preparing $10 Billion of CMBS Sales

Wall Street banks led by Goldman Sachs Group Inc. and Citigroup Inc. are planning as much as $10 billion in commercial-mortgage bond sales as buyers pile into the debt, pushing yields to the lowest in more than five years.

Citigroup and Goldman Sachs are teaming up to issue about $900 million of securities linked to shopping malls, skyscrapers and hotels as soon as next week, according to a person familiar with the offering who asked not to be identified because terms aren’t public. Wells Fargo & Co., Royal Bank of Scotland Group Plc, Morgan Stanley and Deutsche Bank AG are also set to issue deals this month, said other people, who declined to be identified because terms aren’t public.

Sales of commercial-mortgage backed securities are surging as the Federal Reserve holds interest rates at almost zero for more than four years, encouraging bond buyers to seek out riskier assets. Issuance of the debt is poised to rise 50 percent this year to $60 billion, according to Deutsche Bank.

“Investors have been falling all over themselves to buy CMBS of all varieties since the beginning of the year,” Harris Trifon, a debt analyst at Deutsche Bank, said today in an interview at the Commercial Real Estate Finance Council’s annual convention in Miami. “The deals should be well absorbed by the market, but the amount of new supply could cause some indigestion.”

About $10 billion in offerings are set for the next two weeks as monthly sales surge to the highest since 2007, according to Trifon. The commercial-mortgage backed securities market is recovering after shutting down when credit markets froze in 2008. A record $232 billion was sold in 2007, according to data compiled by Bloomberg.

Tightest Spreads

Morgan Stanley and Bank of America Corp. sold $1.4 billion of the bonds on Jan. 9 at the tightest spreads since sales revived in 2009. The lenders issued top-ranked bonds maturing in 10 years to pay 72 basis points more than the benchmark swap rate, Bloomberg data show. That compares with 85 basis points on similar debt sold by JPMorgan Chase & Co. last month. A basis point is 0.01 percentage point.

The extra yield investors demand to own top-ranked commercial-mortgage bonds rather than Treasuries has narrowed 1.21 percentage points since the end of 2011 to 1.02 percentage points as of Jan. 14, according to the Bank of America Merrill Lynch AAA U.S. Fixed Rate CMBS Index. Spreads reached 0.99 percentage point on Jan. 3, the least since July 2007.

Participants at the Miami conference are “decidedly upbeat,” marking a “complete departure” from previous years when the $550 billion commercial-mortgage bond market was struggling to regain its footing as volatile price movements spooked investors and issuers, Trepp LLC, a commercial mortgage data provider said in a note to clients today. Lenders are anticipating adding staff in 2013, according to Trepp.

“The market tone is positive, but given the magnitude of the spread compression we have seen since the beginning of the year, we might be due for a pause,” Trifon of Deutsche Bank said.

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