7marketSpot ? Trophy Assets Lead US Commercial Real Estate ...

Trophy Assets Lead US Commercial Real Estate Recovery, Benefitting CMBS and Institutional Investors

23 MAY 2011

Our new US commercial real estate price indices show a clear recovery trend.7 The two indices, which we developed with two collaborators, capture sales of properties of $10 million or more in six major US cities. These properties are commonly referred to as ?trophy assets.? The price increase is credit positive for commercial mortgage-backed securities (CMBS), because increased prices lower losses, and credit positive for institutional investors because many of them invest in trophy properties.

CMBS benefit. For CMBS, the recovery in trophy property value is credit positive because higher property prices lower defaults and increase recoveries for loans backed by these assets. Trophy properties secure approximately 4,400 CMBS loans totaling approximately $180 billion, about 30% of outstanding issuance.

Institutional investors benefit. The price recovery of trophy assets is also credit positive for institutional portfolios because debt and equity supported by trophy assets constitute a significant portion of the portfolios of leading institutional investors. Investors have long paid premium prices for trophy assets under the assumption that they have superior value retention characteristics.

Trophy property prices improve more than the overall market. As the exhibit below shows, the new indices demonstrate significant recovery for trophy properties relative to the overall market as represented by the Moody?s/REAL Commercial Property Price Index (CPPI). The first index, which covers trophy property prices excluding distressed transactions, has risen 26.7% from its trough in December 2009. The second index, which shows trophy property prices with distressed transactions, has risen 22.9% since its trough in July 2009. In contrast, the CPPI has bounced along the bottom for two years with no sign of recovery.

The exhibit also illustrates that the divergence of trophy property prices from the overall market is a recent phenomenon. From the inception of the series in December 2000 through the peak, the trophy indices moved in tandem with the CPPI, albeit with a slight lag. They also moved in tandem through the bulk of the market decline through mid-2009. For the past year, however, the trophy series have diverged from the CPPI. This divergence is consistent with liquidity in the commercial real estate sector first returning to trophy properties before other assets.

Source: http://7marketspot.com/archives/5813

mark twain once upon a time in the west denmark naomi campbell luxor estonia penelope cruz