By Todd McNeill
As the fall weather cools off the hot summer, the same is not true in the CMBS world. What was a choppy summer of spread volatility amid news from Europe, along with the current jobless recovery in the U.S., has turned into a potential 4th quarter rally for CMBS lending.
In the past few months bond prices have soared. Likewise, CMBS lenders that have been warehousing loans headed to securitization have been seeing the values of their mortgage portfolio increasing. This unforeseen profit will erase some of the losses incurred during the summer when bond prices sank, creating just the opposite effect on CMBS valuations. Although Wall Street CMBS shops use “other people’s money,” they still take “warehousing” risk while funneling this much-needed capital to the commercial real estate market.
In the meantime, CMBS shops will be able to pass along the lower cost of funds to the Borrower, which will make CMBS loans compete head-to-head with the Life Company fixed-rate products. In fact, it is believed that one of the keys to the bond price increase has been the message coming from the Federal Reserve Bank that they intend to keep interest rates low for quite some time. The investors that have been hoarding cash are now starting to find suitable places to get yields. Yields on long-term bonds have dropped almost 80bps from this summer. What better place to get yield than on CMBS mortgages that are being underwritten on conservative terms with reasonable property valuations? Thus, renewed interest in CMBS bonds by investors is fueling the resurgence of the CMBS lenders.
Within the last 30 days at MCA, we have been getting 70% LTV to 75% LTV quotes from CMBS shops that have “all in” coupons around 4.25% for a 10 year fixed-rate loan. These low interest rates, coupled with the fact that most Life Insurance Companies have already filled their allocations for 2012, means that one should expect a 4th quarter surge in production from CMBS debt providers. In addition, MCA has seen a willingness of CMBS lenders to start looking at deals under $5mm in loan amount, a welcome sign for Borrowers here in Texas where not every deal is a mega deal.
Between now and the end of the year will be the time to strike for Borrowers looking to fix their rates for the next 10 years on a non-recourse basis. Contact MCA to find out how your loan request will size and price before the fiscal cliff of Dec. 31 or fill out the form below: