Morgan Stanley is reportedly talking about packaging commercial mortgage-backed securities backed by single asset and large loan deals, according to BW sister publication Real Estate Finance & Investment. Single asset deals--almost always backed by trophy assets--have been viewed as much riskier in the wake of Sept. 11. Jon Strain, managing director at Morgan Stanley, did not return phone calls seeking comment.
Single asset bonds have been traded infrequently since Sept. 11 and at spreads about 25-30 basis points wider than conduit paper. This was demonstrated last week with bonds from the securitizations of 245 Park Ave. and 1345 Ave. of the Americas, two New York towers. And, there also is concern that the rating agencies may be compelled to make some downgrades, which would force some owners to sell.
While agreeing with the theory behind packaging, some investors are skeptical of such a plan. They noted that large loan and single asset deals made up about half of the pipeline in 2001 but there is not a substantial amount of this paper. Michael Hoeh, portfolio manager at Dreyfus, points out that owning a small amount of single-asset paper spread out among conduit paper is really not much different than owning a fusion deal. In addition, some investors said they were willing to take the risk for the extra spread, especially if the terrorism insurance issue gets resolved.