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B. G., Opalesque Geneva: Bob Neighoff, portfolio manager of the Cicero CMBS strategy at Mariner, talks to Opalesque about the obscure world of commercial mortgage-backed securities.
You can access Part 1 here.
Opalesque: Can you tell us more about the current opportunities in CMBS?
Bob Neighoff: There's one first technical reason to consider CMBS. As I mentioned, the first buyers of CMBS are big mutual funds, insurance companies, banks, money managers and such. They have become forced sellers because fixed income in general, with interest rate volatility, has become a tough sector. They sell into secondary markets where the hedge funds buy their securities. So in and of itself, that technical aspect of CMBS creates a pricing inefficiency.
Hedge funds demand returns on what they get for investing in the bond from the big mutual funds, such as a 15% yield. Fixed income with a 15% yield is more than three times that of treasury rates. It is a lot of alpha.
Secondly, it is in the structure. If you're investing in CMBS, you're effectively buying loans that are 50% loan to value. If you pick higher bonds, they create more leverage or equity in front of you, or protection.
Commercial real estate property prices are only down 20% right now from their peak in 2022. But I can buy a security from 2014 wher...................... To view our full article Click here
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