Last year, as commercial-mortgage-backed securities rallied from the 2008 market collapse, investors pocketed returns of 17 to 40 percent or more on triple-A-rated CMBSs. “It was like shooting fish in a barrel,” one investor recalls.
Today that barrel looks empty. Returns have fallen to about 6 percent for triple-A commercial mortgage paper. Most CMBS investors are worried about a welter of problems: the European sovereign debt crisis, impending changes in financial regulation, the state of the U.S. economy and the prospect of more CMBS defaults.
“There’s a ton of uncertainty,” says Alan Todd, head of CMBS research at J.P. Morgan. “Many investors feel there are many potential outcomes [to the current troubles ] and that resolution may still be a few years away, so they are pricing for the worst — especially in light of the current price volatility.” ....