Citigroup, Inc (NYSE: C) and Goldman Sachs Group Inc. (NYSE: GS) will sell a $788.5 million commercial mortgage backed security, the largest deal of its kind since the beginning of the financial crisis.
The deal was made public when a term sheet was sent to investors detailing the deal that Reuters obtained. The issue would be the sixth since the market for commercial mortgage backed securities (CMBS) re-opened in December. The deal is expected to be priced next week.
Analysts see multi-borrower CMBS issues as important to the $700 billion market, which faces a substantial shortfall of available credit. More than $1.2 trillion worth of mortgages on commercial property loans will mature in the next several years and it’s not entirely clear how many of those can be refinanced using CMBS since many of those properties lack enough equity of revenue now required by under writing standards.
The new commercial mortgage backed securities will be sold with an average loan-to-value (LTV) ratio of 53.7%, much more conservative than the issues which were done during the real estate bubble. The debt service coverage ratio will be 1.88, another ratio which is much safer compared to older ratios.
“The deal looks like it’s going to come pretty tight, but that looks well-deserved,” said Paul Norris, head of structured products and a senior portfolio manager at Dwight Asset Management in Burlington, Vermont to ABC News. He added that the lack of a new issuance and demand for yield by investors has created a supply-demand imbalance.
