CMBS Financing to Become More Attractive for Borrowers

CMBS financing terms are becoming increasingly more favorable for borrowers, say panelists at the MBA's Commercial Real Estate Finance/Multifamily Housing Convention and Expo 2014.

Orlando, Fla.—CMBS financing terms are becoming increasingly more favorable for borrowers, suggested panelists at the Mortgage Bankers Association’s (MBA) Commercial Real Estate Finance/Multifamily Housing Convention and Expo 2014. The conference is taking place in Orlando, Fla., this week.

CMBS capital has returned strongly to the commercial and multifamily property markets, but conduit lenders are facing increasing competition from their peers and other non-conduit originators. This competition is driving more attractive loans.

“Clearly the market has accelerated,” says Matthew Salem, managing director at Rialto Capital. Speaking on the panel “CMBS Market Forecast,” Salem observed that the relaxation in CMBS loan terms is most apparent at this point in lower LTV requirements and increasingly common interest-only terms.

Panel moderator James Dumars, senior vice president and managing director, NorthMarq Capital,  said that about $86 billion in CMBS issuance is expected for 2013. Speakers on the panel said they foresee about $100 billion or more in CMBS issuance for this year.

There are said to be roughly 30 conduit lenders now. John Burke, managing director and head of originations at RBS, said that many new players are entering the conduit market in preparation for the spike in maturities that is expected beginning next year. According to MBA, total commercial and multifamily property loan maturities will rise by 72 percent in 2015, and an additional 34 percent in 2016.

As a result of the greater amount of liquidity in the market, speakers said they did not foresee at this point a major problem refinancing the wave of maturing loans beginning next year. Dennis Schuh, managing director and head of CMBS originations, J.P. Morgan Securities, commented that property values have increased faster than expected and that many properties are no longer under water.

Shuh said that competition has been increasing among CMBS each year in the past few years, and that CMBS underwriting standards have continued to loosen as new competition emerges. At the same time, the market is now more normalized; standards are by no means equivalent to those at the previous market peak; and that there is still “plenty of room to run” for the underwriting in an improving economy.

There is a chance the high level of competition among conduit players, and the favorable environment for borrowers is temporary, though. As profits compress because of the competition, the industry will become less attractive to potential new entrants, suggested Salem. And future volatility in the capital markets could shake out the smaller players while the few more dominant conduit houses remain in the market.