A mortgage on a Tennessee shopping mall coming due in June may show Wall Street is ready to resume bundling real estate loans into bonds, part of a $700 billion debt market shuttered for almost two years.

Glimcher Realty Trust of Columbus, Ohio, is in talks to obtain financing from Goldman Sachs Group Inc. to retire debt on The Mall at Johnson City that may be packaged with similar obligations and sold to investors, according to a person familiar with the transaction who declined to be identified because the negotiations are private. The current loan balance is $37.2 million, data compiled by Bloomberg show.
Goldman Sachs, Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Deutsche Bank AG are approaching property owners with terms for mortgages that may get packaged into securities with other loans as relative yields decline, said people familiar with the talks.
The last sale of real estate securities from multiple borrowers was in June 2008, Bloomberg data show. Last year’s sales were backed by loans from a single borrower.
Restarting the commercial mortgage-bond market is “like recovering from a very bad motorcycle accident,” said William Glazer, president of Keystone Property Group of Bala Cynwyd, Pennsylvania, which completed a recent refinancing in suburban Pittsburgh.
“In rehab, people are more risk averse, because they were so badly stung in the accident.”
Sales of commercial-mortgage backed securities plummeted to $11.15 billion in 2008 from a record $232.4 billion in 2007 as the credit market seized up, according to data compiled by Bloomberg.
Even with U.S. government aid, only $3.04 billion of the bonds were sold last year, the data show.
The lack of transactions choked off funding to borrowers with maturing debt.
About $28 billion in commercial mortgages packaged into bonds mature this year, according to Credit Suisse Group AG data.
Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of government debt was unchanged yesterday at 171 basis points, or 1.71 percentage point, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index.
A year ago, the spread was 446 basis points.
The Markit CDX North America Investment Grade Index fell 1 basis point to a mid-price of 98 basis points yesterday, according to broker Phoenix Partners Group.
In London, the Markit iTraxx Crossover Index, which is linked to the debt of 50 European companies with mostly high-yield credit ratings, declined 1 basis point to 506, according to JPMorgan Chase & Co. prices.
A decrease signals improving perceptions of credit quality.
A basis point, or 0.01 percentage point, equals $1,000 a year on a contract protecting $10 million of debt.
(Source: Bloomberg)