Mortgage brokers rejoice as new commercial mortgages for Real estate trusts

Mortgage brokers have taken heart at the recent capital raisings by many of Australia's commercial mortgage funders.

Debt refinancing using commercial mortgages will be available real estate investment trust sector soon.

High borrowings were the main source of problems that caused the collapse of the property market in late 2007. Despite this concern, recent successful raisings by trusts indicate that credit markets don't see a problem.

Analysts say the attraction of commercial mortgage-backed securities (CMBSs) for the REITs is that they allow a diversification for refinancing.

The downside is that they are secured against the assets. That has been reflected by the debt stalemate of the past year, as the trusts had to sell assets to unwind the CMBSs. But this was impossible, given the falling value of the underlying assets.

The head of real estate investment banking at Citi, said the recent issues demonstrated the continuing easing of restrictions in credit markets and provided good diversity from the traditional, and expensive, bank debt, which remains mostly frozen.

Macquarie CountryWide Trust has just completed the first Australian issue of CMBSs in two years, selling $265 million of notes.

Strong investor demand resulted in $225 million being issued at a margin of 410 basis points, together with a further subordinated tranche of $40 million.

The securities have a three-year term, with an option to repay after two years.

As a result, the trust has fully repaid the 2006 Australian dollar CMBS notes, using proceeds from the new issue, cash from recent asset sales and funds drawn from a debt facility.

The new securities, arranged by National Australia Bank, will have a AAA rating assigned by Fitch Ratings and Standard & Poor's.