Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/536709
16 July | August | 2015 Commercial Investment Real Estate c IN V E STMENT A N A LY S I S Ryhor Bruyeu/Thinkstock Commercial mortgage-backed securities lending is alive and well — maybe too well, depending on where you look in the market. One of the biggest strengths of the current CMBS market is its effi ciency, with more than 30 investment fi rms competing nationally, including specialty fi nance fi rms, banks, and bank-holding com- panies. Firms with coast-to-coast reach, in particular, are seeing a considerable amount of lending activity. A competitive market creates a mostly sunny outlook. Clouds on the Horizon T ere is a downside to the heated competi- tion in the CMBS loan market. T e com- petitive environment is forcing lenders to be more creative in how they structure loans. Some lenders are aggressively going as high as 80 percent loan-to-value on certain prop- erty types, which could portend a negative trend for CMBS lending. Currently, in stronger markets such as Bos- ton, New York, Chicago, and San Francisco, properties are being aggressively bid. Property values are at capitalization rates tighter than the yields on 10-year U.S. Treasurys. While we are not seeing this trend in every market, the rate at which commercial property values are rising warrants some concern. At the same time, it feels as if B piece buy- ers are getting much, much tougher — much more credit sensitive — than they were previ- ously. T ese buyers of non-investment grade components of CMBS capital structures have factors fueling this competitiveness is the healthiness of the market's bond component. As an investment product, on a relative value basis, CMBS bonds are inexpensive com- pared to other f xed income products. More- over, CMBS bonds are the only product out there with any signif cant duration, which means CMBS bonds have good convexity with regard to yields. Not only is CMBS lending an incredibly transparent market, but CMBS loans also have excellent call pro- tection. T ese key factors forecast for positive CMBS spreads. by Ti oltermann CMBS Forecast No doubt, there is plenty of opportunity in the CMBS lending market thanks to the unprecedented amount of loans that were sold from 2005 to 2008. But those opportuni- ties don't really mean much unless the under- lying economics and commercial property markets are healthy. Fortunately, the U.S. economy is getting stronger and commer- cial real estate, including CMBS lending, is participating in that strengthening. Currently, CMBS lending couldn't be a better market for borrowers because there is so much competition. One of the chief