SAN FRANCISCO, CA -- With $1.4 Trillion collateralized loans coming due in the next 48
months, and 9.2% of all such loans 30 days past due, you would think that Wall Street and lenders might be hesitant to originate new commercial mortgage-backed securities (CMBS). Not so.
In this well written piece by Matt Hudgins for the National Real Estate Investor, you'll gain insights into what is being referred to as "CMBS 2.0".
The new generation of CMBS seeks to address investors' concerns over previous securitization practices pertaining to disclosure. New deals remove perceived conflicts of interest among the bondholders and shift authority over the special servicer away from investors in the riskiest class of bonds to those at the top of the capital stack.
The innovations seem to be working.
CMBS issuance reached $11.6 billion in 2010 after a scant $3.1 billion issued in 2009 and $12.1 billion in 2008, according to the weekly newsletter Commercial Mortgage Alert. The consensus forecast calls for $35 billion to $45 billion this year, far short of the $230 billion churned out in the peak year of 2007.
On a personal note, I was told that I was the first U.S.deal maker to execute an assumption of a CMBS loan back in 1997, just shortly after CMBS appeared on the scene.
It took me several weeks to find the right executive VP at a major, unnamed Wall Street investment bank to sign off on the assumption -- no one knew the procedures. I knew loans bundled into CMBS would cause major problems in the future. The farther the leveraged loan was distanced from the original borrower and lender the less likely there would be accountability.
As Hudgins points out, now bond buyers of CMBS are requiring transparency, disclosures, arms-length relations between servicers and bond owners. Most important, buyers of lower tranches will not be able to leverage out their costs through collateralized debt obligations (CDO).
Before the market peaked in 2007, many investors rolled their B pieces of loans into collateralized debt obligations (CDOs) and recouped their capital by selling CDO shares to other investors.Stricter fundamentals as well.
CMBS bond holders also expect higher Loan to Valuation generally maxing out at 70%, underwriting based on in-place rents and leases, and vented borrowers.
A must Read: LINK