Here They Go Again: CDOs Manufactured From Wall Street Flotsam & Jetsam Are Back!

By Sarah Mulholland Apr 4, 2014

Bloomberg News

Commercial real-estate investor H/2 Capital Partners bundled a hodge podge of its holdings -- from bonds tied to skyscrapers and malls to junk-rated bank loans -- into about $400 million of securities. The deal, similar to the pre-crisis transactions known as collateralized debt obligations, included one portion that Moody’s Investors Service gave its highest rating of Aaa.

The investment firm is seizing on a revival of the types of transactions that fueled the property boom in 2006 and 2007, showing the lengths to which investors are going to bolster skimpy yields across credit markets. Such offerings are giving commercial-property investors a wider range of options to fund acquisitions, according to Richard Hill, a debt analyst at Morgan Stanley.

“Investors are willing to take on more risk in the hunt for yield,” the New York-based analyst said in an interview this week. Such deals “in the right hands can be a very powerful and productive tool, but in the wrong hands they can be destructive.”

Sales of CDOs tied to commercial real estate are accelerating after the market lay dormant for five years. While anticipation started building three years ago that they would reemerge, the first post-crisis offering wasn’t completed until September 2012, Morgan Stanley data show.

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