The small size and poor liquidity of lower-rated CMBS tranches have curbed demand for this paper among large buyers, said Ethan Penner, president of CBRE Capital Partners.

“AAA buyers are attracted to CMBS because their class is large and thus likely to be liquid,” Penner said via e-mail. Lower-rated tranches tend to be in the $30 million-to-$50 million range, which limits their appeal to big investors. “The more junior one goes the greater the need for time-consuming and costly due diligence,” he added.

Naturally, the yield has to be high enough to justify the extra legwork. “The world is starved for yield,” Penner said, adding that there were “dirt cheap” opportunities among post-2009 vintages rated between triple-B and double-A. These tranches were sure to eventually attract buyers, he said.

On a panel at the CRE Finance Council Conference this week, Penner said that investors are currently seeking double-digit returns, while in the currently low interest-rate environment returns of 7%-8% should be appealing, according to an brief put out by Standard & Poor’s.

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