New TRX Index Key to Restarting CMBS Lending

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A new total return swap (TRX) index based on three new CMBS deals could provide a mechanism for loan originators to hedge loans, and would also attract investors, NewOak Capital said.

The new index might be just the thing that pushes certain CMBS players to move forward with loan origination.

"Inability to hedge loans while aggregating a pool large enough for securitization is one of the biggest obstacles preventing restarting of conduit lending for commercial real estate properties,” said Malay Bansal, head of portfolio management and advisory for commercial real estate and CMBS at NewOak Capital.

The Lehman Brothers and Bank of America CMBS indices that worked in the past are no longer appropriate for hedging, especially for new origination loans.

Bansal explained that spreads on new bonds with newly underwritten loans cannot be expected to move in tandem with spreads on old bonds, which makes the old bonds or indices unusable as a hedge for newly originated better quality loans.

“Originators want deals with new collateral so they can hedge, and new deals require originators to originate new loans,” he said.


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