The Importance of Momentum in CMBS 2.0

By Kevan McCormack, Senior Director

Metropolitan Capital Advisors is discussing many CMBS 2.0 topics in our blogs because the importance of the re-emergence and success of CMBS should not be understated as it relates directly to the ultimate health and sustainability of commercial real estate.  Securitization provides a very crucial liquidity need for the debt markets.

There are plenty of blogs that discuss the myriad of macro-economic issues circulating around this new evolution of CMBS.  Our preference is to discuss a very micro-level topic involving strategy for getting deals done today in the CMBS market.  Simply put, “Momentum”.

Deal Momentum is crucial in this new and inefficient market called CMBS 2.0.  Momentum and the ability to capture the lender’s attention and keep it until the deal funds is the real game changer that leads to a successful closing.  A borrower needs to be “ready to pull the trigger” when they go hunting for a loan in today’s market.  As a borrower, you are the hunter.  We, as intermediaries, are the hunting guide.  We can show you the way and give you clarity on what to expect, but the borrower has to know what it wants and be ready to shoot.

The importance of creating and sustaining deal momentum is huge.  If you are buying a stabilized property, have the equity raised and be ready to go before you hunt for securitized debt.  If you are refinancing a property, have a realistic expectation of what leverage and interest rate you will accept and be ready to move when you find a financing source stepping up to issue an application for your deal.

“Time Kills Deals”!  Waiting for a better deal in today’s CMBS market may backfire!  As you wait for that better deal to emerge from tree line, the deal you thought you had may indeed “wander off into the financial forest” leaving you with no other targets to pursue.

In the meantime, interest rates will change, spreads will widen, cap rates will rise, QE2 will expire, QE3 may or may not become reality, the CMBS 2.0 loan originator could change shops, or some other critical factor will change making the next deal you see not as good.  This puts the borrower into a vicious psychological cycle always expecting the next deal to be better at the expense of just making the kill.

The borrower needs to clearly define the primary parameters for success.  If a loan structure works and is accretive or solves a real problem, then the borrower needs to move quickly.  Knowing what to expect before going into the markets will help the borrower be more decisive at that critical decision point, but the borrower still has to make the decision.  Like all that is good in business and life, the window of opportunity may be short when it comes to a CMBS deal lining up perfectly in your gun sights.  Take your best shot!!!