Finding Value in Commercial Real Estate Credit
Speakers
Andrew Sheets
— Chief Cross-Asset Strategist, Morgan Stanley
Summary
Andrew Sheets discusses why commercial real estate debt (CMBS) is overlooked and undervalued despite headwinds. He highlights improving fundamentals, declining distress, and reduced new supply as reasons to favor CMBS over other fixed income where spreads are historically tight.
- Bond yields have risen, attracting flows, but spreads on most bonds are near historic lows.
- CMBS spreads are an exception, remaining significantly above the long-run average.
- Commercial property transaction volumes rose 27% in Q1 year-over-year.
- Commercial property prices increased about 5% over the same period.
- CMBS debt origination is up 40% over the last year.
- Distressed commercial deals saw their first quarterly decline since early 2023.
- Reduced construction due to past rate hikes supports existing property values.
- US economic resilience is helping the commercial real estate recovery.
Trade Ideas
CMBS are undervalued with improving fundamentals.
CMBS (commercial mortgage-backed securities) offer significantly higher spreads than the long-run average, while commercial real estate fundamentals are improving: transaction volumes up 27% in Q1, prices up 5%, debt origination up 40% year-over-year, and distress declining for the first time since early 2023. Reduced new construction due to past rate hikes will support existing property values, making CMBS an attractive risk-reward versus other fixed income where spreads are near historic lows.
Up Next
This Morgan Stanley video, published June 04, 2026, features Andrew Sheets discussing CMBS. 1 trade idea extracted by AI with direction and confidence scoring.
Speakers: Andrew Sheets · Tickers: CMBS