A Not-So-Contrarian Approach: The CRE Debt Investment Thesis.

When David Rubenstein of the Carlyle Group speaks, the market listens. A couple of weeks ago, Rubenstein made headlines by saying that "the best single investment that I know of today is probably going to be commercial real estate debt in downtown office buildings, buying it from the banks when the banks want to get it off their books."

Fixed-income investors are following the same investment thesis with CMBS loans in the hospitality space. "The additional yield offered by the highest-rated CMBS when compared with Treasurys has increased, while corporate-debt yields have barely budged." (The Contrarian Investors Betting on Commercial Real Estate, WSJ) In March, CMBS bonds were at their cheapest prices relative to investment-grade corporate bonds on record. Investors aren't claiming that commercial real estate is bound for a quick rebound, but are focused on the safest bonds - like AAA-rated CMBS bonds. 

AAA-rated bonds are at the top of the capital stack for a property, meaning they’re cushioned from a potential default. Investors are piling into bonds backed by high-end hotels and other properties in the hospitality space. 

According to these investors, "It’s a good time to be investing."