Real Estate Evita "catastrophe"

investor confidence in U.S. commercial property is the highest since the 2007 market peak, a sentiment reflected in the bonds of real estate companies that own everything from the skyscrapers of New York to California malls.

Yields on debt securities issued by real estate investment trusts average of 210 basis points more than Treasuries, at least from the November 12, 2007, according to data from Bank of America Merrill Lynch index. The debt has returned 13.2 percent this year, outpacing an 8 percent increase in investment grade bonds.

The debt of the companies that own offices, shopping centers, apartments and warehouses has joined as a lack of demand spurs development of new "little by little," according to billionaire investor Sam Zell, chairman of Chicago-based Residential Capital apartment owner. The Moody's / REAL Property Price Index has changed little since October 2009 after falling 45 percent in two years.

"If there is a new offer, then the disaster that everyone was hoping not going to happen," said Zell, 69, in a telephone interview. "Commercial real estate is not suffering and is in fact getting better," said Zell, the founder of Equity Office Properties Trust, the largest U.S. owner office before Blackstone LP bought in a record leveraged buyout in 2007.

REITs have issued 17.7 billion U.S. dollars of bonds this year, the most since 2006. The sales helped to refinance existing debt and strengthen balance sheets stabilize incomes and employment, debt-research firm CreditSights Inc. said in a report last month.

No Stone

"Real estate is all about supply and demand," said Zell. "We have not built anything in this country since July '07. We're not building anything right now."

Elsewhere in credit markets, the extra yield investors demand to own company bonds rather than similar-maturity government debt remained unchanged at 171 basis points, or 1.71 percentage points, according to the Bank of America Merrill Lynch Corporate Market general index. The average yield of 4.021 percent, the highest since June 22.

The cost of protecting corporate bonds from default in the U.S. fell for the tenth consecutive day yesterday, the longest streak of declines since 2006.

Securities of Wal-Mart Stores Inc. sold in October fell to its lowest level since they were issued as debt offerings fell to less than about three weeks. Leveraged loan prices climbed to the highest in almost a month, while junk bond spreads matched the lowest point this year.

Coverage against loss

The Markit CDX North America Investment Grade Index, which investors use to cover losses on corporate debt or to speculate on creditworthiness, fell 0.6 basis points to 85.8 basis points from New York 18:54 yesterday, the lowest since Nov. 5, according to index administrator Markit Group Ltd. The index has fallen from 99.4 in late November. The indicator fell for 10 consecutive days in the period ended October 26, 2006.

The Markit iTraxx Crossover Index of 50 European companies swaps mostly junk rating fell 2 basis points to 237 today, the lowest since November 09.

Swaps credit-default tend to fall as improving investor confidence and rising as it deteriorates. Contracts pay the buyer face value if a borrower defaults on its obligations, less the value of the defaulted debt. A basis point equals $ 1,000 annually on a contract protecting $ 10 million of debt.

Federal Reserve chairman, Ben S. Bernanke said yesterday the central bank maintains its plan to buy $ 600 billion of Treasuries in June to boost the economy and reduce unemployment.

"Do not fight the Fed," said James Parascandola, head of credit derivatives operations of Holdings Ltd. MF Global in New York. "Stocks are rising, credit spreads get tighter, that is the environment."

Most traded bonds

Bond New York, Citigroup Inc. were the most actively traded U.S. corporate securities by dealers, with 125 transactions of $ 1 million or more, according to Trace, the bond information system in the prices of the Financial Industry Regulatory Authority.

Wal-Mart for $ 1.75 billion of 3.25 percent securities due in October 2020 fell 1.3 cents to 92.6 cents, monitoring data show. The notes of Bentonville, Arkansas-based company performance 70 basis points more than Treasuries of similar maturity, according to Trace. The debt was issued at 99.619 cents on the dollar, with a spread of 78 basis points more than the benchmark.

Financial companies led by NCO Group Inc. sold 747 million U.S. dollars in U.S. debt, the lowest volume of sales since November 26, when the expedition stopped after the Thanksgiving holiday.

CNO sells bonds

CNO, the insurer formerly known as Conseco Inc., sold $ 275 million of 9 percent notes due in January 2018 to yield 626 basis points more than Treasuries of similar maturity.

"We saw a lot of today's broadcast and there was really no reason to hit the market," said Guy LeBas, chief fixed income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. "There is no incentive to enter the kind of volatility that a statement from the Fed can invite."

The Barclays Capital Global Aggregate Bond Index lost 0.28 percent this month, cutting profit this year to 3.9 percent.

In the loan market, the Standard & Poor's / LSTA U.S. leveraged loan 100 Index rose for a sixth day, gaining 0.15 cent to 92.32 cents, the highest since Nov. 15.

The index tracking the 100 largest dollar loans first lien leveraged. leveraged loans and junk bonds are rated below Baa3 by Moody's Investors Service or below BBB-by S & P.

The high-yield debt

The extra yield investors demand to own high-yield debt fell 16 basis points to 542 basis points, matching the lowest level this year set April 26, Bank of America Merrill Lynch index data show. Debt spreads have fallen 80 basis points this month.

In emerging markets, the relative yields fell 12 basis points to 220 basis points, the lowest since December 26, 2007, according to JPMorgan Chase & Co. index data. The indicator has fallen 52 basis points this month, reversing a profit of 30 basis points in November.

REITs were beaten in 2008 by falling property prices and declining employment and incomes fueled by the worst recession since the Great Depression. The bonds lost 29 percent this year on average, as were extended to 1383 points in December 2008 after credit markets seized.

The price of the bond debt over similarly qualified REIT has removed the incentive for investors to buy, said Thierry Perrein, senior analyst at Wells Fargo & Co. in Charlotte, North Carolina.

Rally Over

"The game is over," said Perrein, in October cut its rating on the debt to "market perform" from an "outperform" rating is assigned in May 2009.

"If you are involved now, they kind of missed the rally," he said.

REIT debt, which had won for 10 consecutive months in the longest winning streak since 2001, fell 2.67 percent this month, the index data show. That compares with a loss of 2.34 percent on investment-grade debt and a gain of 0.92 percent in high yield bonds.

Improved forecasts denies investors, including the interiors Real Estate Group Inc. Vice President Joe Cosenza commercial real estate market that had more to fall.

'Double-Dip "

In an interview in the office of LP in Chicago in July, Cosenza said a "double dip" in the commercial real estate market may have reached as early as September.

The change is being driven in part by the relatively thin list of distressed properties are for sale and rebound faster than expected in fundamentals such as rents and vacancy rates, according to Newport Beach, California , based in Green Street Advisors, an independent real Private research firm.

HCP Inc., the largest U.S. REIT health care market value, said on the night of Dec. 13 it would pay 6.1 billion U.S. dollars for 338 nursing homes in UNHCR Inc. ManorCare Carlyle Group in the biggest REIT deal in three years.

The acquisition is "a good example of public REIT purchase of private equity firms looking to profit on investments a few years ago," said Craig Guttenplan, a London-based analyst at CreditSights, who recommends buying the REIT debt.

Boston Properties

Boston Properties Inc., the U.S. office REIT led by Mortimer Zuckerman, and Toledo, Ohio-based Health Care REIT Inc. was $ 2,630,000,000 of bond sales for the industry in November, the highest since March.

Sales of bonds linked to commercial real estate loans are beginning to recover as well. About 10.6 billion U.S. dollars of debt issued this year, up from $ 3.4 billion in 2009. The issue may reach $ 45 billion in 2011, according to a November 24 report from JPMorgan.

Americold Realty Trust, an operator of stores owned by Ron Burkle's Yucaipa Cos., sold $ 600 million of bonds backed by commercial debt, mortgages, a person familiar with the deal said on December 9. The offer was guaranteed by cold storage, compared with recent transactions that have been supported mainly by shopping malls and office buildings.

U.S. vacancies apartment fell for the first time in nearly three years in the third quarter, suggesting the trend of people traveling with family or friends may fall, New York, research firm Reis Inc. said.

Less vacancy

Vacancies in U.S. district Central Business Office declined for the second time in the third quarter, reaching 14.7 percent compared with 14.8 percent in the last three months, the tenants signed leases additional space, according to agent Cushman & Wakefield Inc.

The average rent per square meter of REITs operating in the central business districts, including Boston Properties and Vornado Realty Trust, the increase in the third quarter, while declining REIT focused on suburban properties, the As Highwoods Properties Inc. and Mack-Cali Realty Corp., according to CreditSights report in November '22.

"The non-urban office buildings could be a good way to ever rent again, but all in New York and other cities 24 / 7 continues to improve every day," said Zell.