Pressure is mounting on some UK banks to offload the near £40bn legacy of commercial mortgage-backed securities sitting on their balance sheets as the loans’ prices plunge.
The subsequent returns on offer to CMBS buyers have soared, with City traders this week seeing spreads of 300 basis points for AAA-rated loans that were offered for as low as 15bp last June.
The lower quality BBB-rated debt traded as high as 1,500bp this week, but those spreads were trading closer to 100bp prior to the credit crunch.
However, the loans are still on balance sheets as potential buyers are thought to be waiting for prices to fall further.
The spread hikes are a result of the worsening outlook for bank lending in the wake of the Bear Stearns collapse, with almost one-third of banks now refusing to offer commercial property loans.
According to research from Cushman & Wakefield, 28% of lenders are steering clear of the sector, and those lending above £50m are having to club together to do so.
Ian Marcus, head of real estate at Credit Suisse and BPF president, said: “The evidence continues to support that things will get worse before they get better.”
Marcus said it was inevitable that some large holders of CMBS loans would have to sell the debt at significant discounts.
“There are a number of banks with new chief executives who could just price the loans to sell them – but what effect does that have on other banks with positions, but who are not forced sellers?
“Effectively, their market price is where the last deal traded – and that is a moving target.”
