‘Foong on Finance’: CMBS Standards Loosen in the CRE World

At CRE Finance Council’s June convention held in New York last week, some financiers were saying that CMBS standards are already slipping, very quickly.

More lenders are entering the CMBS space, seemingly bullish about the prospects for a robust volume of lending. That drive for business, however, creates fierce competition among these players.

“Unfortunately,” the “race to the bottom” is already upon the market, said one speaker. The players are “nearly repeating the mistakes of the past.” Pricing is being being squeezed again, until the pull backs in the last week. When one lender offers interest-only financing, others feel obliged to follow.

Yes, but we are not back to CMBS 1.0, yet, others argued. The quality of the CMBS-financed is still very solid, maintained one speaker. Underwriting has not become “crazy,” and LTV still hover around 65 percent. And it seems the buyers of the CMBS B-pieces, who were badly burned in the last cycle, will impose ultimate discipline on the market, as they can kick out loans that they deem unacceptable. Indeed, it seems CMBS is still not available to the middle market.

Meanwhile, borrowers, at least of the top deals, know lenders are hungry to make loans. They are asking for I/Os, for example‑and getting them. For multifamily, CMBS is merely one more financing option that may be coming into play now.