Analysts at Bank of America Merrill Lynch see some potential for yield pickup in the German multifamily CMBS sector.
In a recent report, they said the market should easily absorb the €2.6 billion ($3.4 billion) in deals reportedly slated to close in 2013. In the sector’s favor are meatier-than-average yields and a solid track record.
The analysts pointed out that investors buying this product could earn 70-125 basis points over spreads offered by comparable U.S. CMBS and U.K. prime RMBS. (See table below)
They estimated that German multifamily CMBS was currently pricing at a spread of around 120 basis points for triple-A tranches and 350-375 basis points for triple-B product.
Loan losses have totaled 0.6% of the €22 billion of German multifamily deals issued since 2004, according to the BofA Merrill analysts. “Where defaults have occurred, the recovery rate has been 94.3% to date,” they said. “The main cause of defaults has been challenges in obtaining refinancing, while term delinquencies have been relatively rare, owing to the granularity and stability of the underlying cash flows, in our view.”
The analysts said that, to the best of their knowledge, single sponsor transactions have yet to suffer a single loss or default.