Blackrock: Back up the Truck on CMBS

by REIT Wrecks on July 1, 2008

Last week, traders reported volatility over CMBS and CMBX as headlines of bank downgrades and quoted predictions of summer oil at $170 a barrel influenced investor confidence. CMBX spreads widened and dollar prices dropped across all tranches of all series during the past week, according to JPMorgan research. Spread widening has continued this week amid persistent rumors of more trouble at Lehman.

However, according to Reuters, Blackrock’s President, Robert Kapito, was unfazed. While he thinks that there will be a much bigger slowdown in 2009, citing slowing growth in emerging markets and tightening pressures on the U.S. consumer, he sees big value in commercial mortgage backed securities.

“We think there’s going to be a global slowdown,” he said at a lunch sponsored by the Securities Industry and Financial Markets Association in New York. BlackRock is the largest publicly traded U.S. asset manager with about $1.4 trillion in assets under management.

Using a baseball reference, Kapito said the credit crisis is in the fourth inning, indicating he believes the crisis is nearly halfway over.

“Inflation is up, housing is down,” he said. “The consumer is hurt. I can’t think of one positive thing for the consumer here.”


But amid the poor economic outlook, Kapito said there are bright spots for investors.

Declines in residential and commercial mortgage-backed securities since last year have created some of the best buying opportunities for fixed-income money managers in history, he said.

“If you take a look in the marketplace, and step back from what’s going on, this is the best time that we’ve ever been in to add value to a portfolio,” he said.

Challenges remain, however, since homeowners are still defaulting on loans and house prices are falling. But money managers who have the ability to do the proper credit research can “ferret out” good opportunities, he said.

Kapito said securities backed by loans on properties such as office buildings, retail stores and hotels were especially attractive, in addition to residential mortgage bonds that do not carry the guarantees of Fannie Mae and Freddie Mac, the two government-sponsored enterprises.

“I am a big believer in backing up the truck and buying CMBS,” he said, referring to commercial mortgage-backed securities.

Click here for an updated Mortgage REIT list, including current yields

REIT dividends

Be Sociable, Share!


Leave a Comment

You can use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Previous post:

Next post: