WITH THE CREDIT MARKETS IN DISARRAY and liquidity in some venues constrained, our second-half 2007 balance sheet growth expectations are hampered, and, in some cases, we expect that restructuring will have taken a toll.
Consequently, we are adjusting our price targets for the commercial mortgage real estate investment trusts under coverage. While we note that underlying credit performance remains healthy for the most part, deterioration in the housing sector has heightened sensitivity and the market's tolerance for credit risk.
The viability of the collateralized debt obligation market, which is currently at a virtual standstill, and exposure to increased margin calls for assets financed with market-dependent short-term debt have caused, and are likely to continue to cause, asset restructuring at a cost to equity holders.
Because these mortgage REITs utilize financial leverage, they cannot hold many assets that they cannot finance. While we do not know what is in store for the CDO market over the next few months, we believe that each of our commercial mortgage REITs -- Anthracite Capital , BRT Realty Trust , JER Investors Trust , Newcastle Investment , NorthStar Realty Finance and Resource Capital -- has enough liquidity in the current environment to survive a period of financing difficulties, though prospects for balance sheet growth appear limited to utilization of existing cash and term debt facilities.
We are lowering our price targets for BRT Realty, JER Investors, NorthStar Realty, Newcastle, and Resource Capital, and maintaining our price target for Anthracite, as the market's tolerance for credit risk has dramatically changed over the course of the last several weeks.
While each of the aforementioned companies has strong credit performance and adequate liquidity, in our opinion, to survive an extended liquidity crunch, we believe that current conditions warrant these names trading at a higher dividend yield and lower price-to book ratio.
We have established fiscal 2008 estimates, and lowered 2007 estimates across the board. In general, we expect limited balance sheet growth over the remainder of fiscal 2007 and relatively slow net balance sheet growth throughout fiscal 2008.
Financing mechanisms for these companies, particularly securitizations in the form of collateralized debt obligations, are uncertain at the current time. We believe, however, that this market will stabilize once the value of commercial real estate collateralized cash flows is determined. The capital markets are generally efficient at determining the value of consistent cash flows with downside protection.
We believe that the group should trade at an average dividend yield in the range of 9% to 11%, at a spread of 450 to 650 basis points over risk-free rates, depending on leverage and credit quality.
Historically, market premiums to book value have been the highest for companies with proprietary asset-gathering franchises. In an environment in which asset gathering will be muted, we expect premiums to book value to contract to the 1.2 times to 1.6 times range.