Whether that happens remains to be seen, and it depends on manyfactors, including if there are investment alternatives availableto these companies. CMBS, namely, has always been a top choice--and for some firms it remains so even in the current market.GlobeSt.com spoke with Todd Everett, managing director and head ofReal Estate Fixed Income for Principal Real Estate Investors, whichinvests for Principal Life, about how the firm is investing its ownportfolio. His answer? More of the company's investable cash flowis going into CMBS this year.

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GlobeSt.com: Why CMBS? Why now?

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Everett: We are putting more investable cash flowinto CMBS because we do see a good relative value. We are findingproducts on the secondary markets that are available at yields thatare very attractive. This year, for instance, we can acquire AACMBS and junior AAA tranches at yields in excess of 9%.

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GlobeSt.com: What is your investment case orrationale behind this decision?

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Everett: Spreads in the CMBS market have widenedbased more on technical factors than the underlying fundamentals.If you looked at how you expect investments to perform on a riskadjusted basis, the spreads offered provide a premium relative toother alternative investments with similar risk. In other words,that premium has been created by an imbalance in supply and demandand the CMBX indices, where hedge funds have shorted. Volatility inthat index, in fact, has done a lot to increase volatility in cashCMBS spreads.

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GlobeSt.com: How else are portfolios changing thisyear? I mean for life insurers in general.

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Everett: Most are entering 2008 with plans thatare likely similar to past years but with the knowledge that theyare able to target higher quality loans and investments—LTVs of 65%or less, for instance.

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GlobeSt.com: The industry average is around 65%for typical years, isn't it? I am wondering how great of a changethis really is.

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Everett: The difference is this year some aredoing 60% LTVs and fewer are above 70%. But you are right,investment strategies compared to pre-credit crunch are notdramatically off base. We can expect most firms to up some inquality with some companies allocating more to this sector becauseof more high quality opportunities.

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GlobeSt.com: You'll still be maintaining a normalyear of commercial loan production, though, even as you put morecash into CMBS?

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Everett: Yes.

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GlobeSt.com: Like the whole loan sector, you musthave your pick of CMBS investments to choose from, even on thesecondary markets.

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Everett: Yes, there is definitely more supply thandemand right now.

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GlobeSt.com: How long do you think that willlast?

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Everett: That is hard to predict; I think theimbalance will improve as the year progresses but it is difficultto say when we will see a material decline (in the imbalance).

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