Trophy Assets Draw Debt and Equity Capital

As the debt saga continues to unfold in Europe, commercial real estate investors are setting their sights on stable trophy properties. The move toward less-risky properties is a shift from earlier this year when secondary market transaction volume was stronger. Jones Lang LaSalle’s 3Q11 Capital Markets Outlook attributes the shift to volatility in global markets stemming from uncertainty surrounding European debt negotiations.

U.S. life insurance companies are among the investors favoring class A trophy properties. Trammell Crow Center and The Crescent, two class A office properties in Dallas, were recently refinanced with the backing of life insurance companies.

Life insurance lending is also filling the void left by slowing commercial mortgage-backed securities activity in the second half of the year. CMBS issuance stood at approximately $27 billion year to date -- nearly double the total 2010 issuances. However, activity began to taper off last summer and is expected to slow through the remainder of the year.

"This slowdown in the CMBS market will have the greatest impact on secondary markets and class B product as their financing alternatives have been reduced," said Mike Melody, executive managing director of real estate investment banking at Jones Lang LaSalle.