Study: Irrational Market Mispricing CMBS

Commercial mortgage-backed securities are being mispriced based on an "irrational" market reaction that presents "significant arbitrage opportunities" for investors, according to a new study released by the Commercial Mortgage Securities Association. The study, which performed multiple stress tests on CMBS based on three historical and worst-case recession scenarios, predicts that CMBS will perform well in a recessionary environment and concludes that current spreads for most vintages are "far wider" than warranted by their fair value. "There are no skeletons in the CMBS closet," said Jun Han, the author of the study. "Market fears and the liquidity crunch have dramatically distorted the value of commercial mortgage-backed securities, creating one of the best environments in history for investing in CMBS." The study was presented at the CMSA's 14th annual convention in New York. The association can be found online at http://www.cmbs.org.