Miami-Based Property Company Invests in Mortgage-Backed Securities.

Byline: Douglas Hanks III

May 26--They are the equivalent of junk bonds and some of the riskiest real-estate investments for sale on Wall Street. Miami's LNR Property Corp. can't get enough of them.

The bonds, called commercial mortgage-backed securities, are tied to repayments of loans for shopping malls, offices, hotels and other commercial projects. LNR buys the bonds, which come with high profit margins but also with the lowest rankings possible from analysts: noninvestment grade, or junk in financial slang.

Few investors buy the riskiest of these bonds, which rank so low on the safe-investment scale they're called unrated. In fact, LNR is one of the four or five companies across the country that does, making its West Miami-Dade headquarters a prominent hub in a $300 billion market that didn't exist until the mid-1990s.

LNR's niche has yet to bring the company much attention, so obscure is that corner of the market and so strong is the spotlight on LNR's old parent company and namesake, home-building giant Lennar Corp. But as the second-largest buyer of the riskiest CMBS bonds, LNR has established a prominent role in a growing market that includes 20 percent of the country's commercial loans.

That role also welds LNR's fate to the fortunes of commercial real estate, an industry in trouble for the first time since the modern CMBS market was born in the mid-1990s. Delinquency rates are rising on commercial mortgages backing the bonds and lending activity is down, testing LNR's strategy and the market itself.

"It's probably been the biggest commercial downturn since the late 1980s," said Anthony Sanders, a finance professor at Ohio State University who studies the CMBS market. "If default rates continue to rise, there's not a helluva lot they can do. If George Bush is right and the economy starts rebounding, LNR executives will look like geniuses."