Two more commercial mortgage bonds suspended due to market weakness

(Bloomberg) – A nearly $1.9 billion commercial mortgage bond tied to a portfolio of office properties owned by Columbia Property Trust Inc. and Allianz SE was delayed on Wednesday due to market weakness, according to two bond investors.

And a commercial mortgage-backed security led by Deutsche Bank, known as COMM 2022-LSC, has also been delayed after initial conversations with investors.

The two transactions bring to at least three the number of CMBS delayed in recent weeks as Russia’s invasion of Ukraine further upended capital markets already reeling from impending Federal Reserve rate hikes. On Monday, Deutsche Bank delayed another CMBS, a $1.5 billion offering tied to the company’s new headquarters at Columbus Circle.

The sale of all types of debt, from junk bonds to asset-backed securities, has become more unpredictable recently, as sharp swings in yields cause more deals to be postponed. It’s a sea change in the markets that for much of the past two years would extend credit to almost any borrower.

The Columbia Property deal, known as CXP 2022-CXP, originally went to market on Feb. 16 and was expected to price during the week of Feb. 21, according to deal documents seen by Bloomberg. The transaction securitized two loans related to seven office properties located in New York, Boston, San Francisco Jersey City and Washington, D.C.

Goldman Sachs Group Inc., Citigroup Inc. and Deutsche Bank funded the loans and arranged the CMBS, which was to help fund the privatization of Columbia Property Trust, according to the deal documents. Last September, Columbia Property announced that it was being taken private by Pacific Investment Management Company, a subsidiary of Allianz SE, for $3.9 billion, including debt.

Representatives from Goldman Sachs, Citigroup and Columbia Property declined to comment, while a representative from Allianz SE did not respond to inquiries. Deutsche Bank has not commented on the Columbia deal or the COMM 2022-LSC transaction.

Volatility, Office

In addition to general market weakness, some investors said the fact that Columbia Property’s deal was tied to office buildings – a class of property whose earnings are uncertain now that more and more people are working from home – did not help the question.

“Volatility and office don’t mix,” said Daniel McNamara, founder and CIO of Polpo Capital, a CMBS hedge fund.

The CXP transaction is tied to seven office properties in relatively strong locations, including 1800 M Street in Washington, DC and 229 West 43rd Street in Manhattan, according to deal documents. The DC building is attached to a loan and the six other buildings are attached to a second loan.

Even with fears over the future of office space last year, a string of high-profile properties were able to sell CMBS in 2021 as investors clamored for securitized bonds that offer a bit more yield than other debt backed by corporate assets and papers.

CMBS without the support of government-sponsored companies tied to offices and other types of real estate hit a post-crisis issuance record last year with sales of over $155 billion , according to data compiled by Bloomberg News.

–With help from Charles Williams, Carmen Arroyo and Erin Hudson.

© 2022 Bloomberg L.P.

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