Tag Archives: cmbs

Market Trends & Indicators

CMBS Defaults Coming, Haven’t Yet Arrived En Masse

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2010, 2011 and 2012 will be difficult years with a significant number of commercial mortgages reaching the end of their five-year lifespans, but another set is coming due in 2015, 2016 and 2017.

About $185 billion of the $600 billion in commercial mortgage-backed loans issued between 2005 and 2007 are scheduled to mature between 2010 and 2012. It’s not only CMBS that market watchers should be worried about, because $1 trillion worth of commercial mortgage maturities will occur by 2012, including CMBS, bank loans and insurance company loans.

There are many hungry buyers sitting on the sidelines with cash ready to pounce.  A limited number of them have been able to find bargains, but most of coming commercial real estate defaults will occur in Office and Retail, with Industrial markets holding better ground.  The Central Los Angeles Industrial market has witnessed very few CMBS defaults at this time.

Market Trends & Indicators

CMBS Defaults Expected to Increase in 2009

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Of $25.7 billion in distressed assets, the Western U.S. takes $10 billion.  However, the good news is that of all commercial property types in the U.S., Industrial has the lowest distressed amount of $700 million out of $25.7 billion, compared the higher amounts of Office, Retail, Apartment (multi-family), Hotel, and Development.  Industrial includes warehouse and manufacturing buildings.  According to Real Capital Analytics Troubled Asset Radar.

Some of the owners  of the distressed or potentially distressed properties are taking preventative measures and seeking bridge loans prior to their primary loans expire.  Many bridge loan terms max out at 18 months and have interest rates from 10-18%.

Market Trends & Indicators

CMBS – Commercial Real Estate Mortgage Backed Securities

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The market for commercial mortgage-backed securities (CMBS) already is in the midst of repricing assets and setting new standards for future loan originations.  CMBS will come back as a significant lender for commercial real estate, but with new guidelines.

In the future, CMBS conduits are likely to make smaller loans than they did before and the debt will not be sliced up and repackaged in as many securitized bonds as the industry had seen during the past few years.  There will need to be more due diligence requirements for originators that are similar to what they have in the stock market.  Perhaps the originators will have to keep some interest in the loans they sell so they keep a stake in how it performs.

Availability of debt is a crucial factor in determining real estate pricing and capitalization rates.  With all else being equal, higher debt availability at lower rates implies increased investment activity, which in turn bids up prices of real estate assets and exerts downward pressure on capitalization.  Conversely, lower debt availability means lower asset prices and higher capitalization rates.  Additionally, less transaction volume and rising vacancies will contribute to reduced pricing of commercial real estate properties.

A lot of Los Angeles industrial properties, either warehouses or manufacturing buildings, have been packaged into CMBS.