CDOs, MBSs, CMBS, CMOs

Industry Reports Point to Renewal in Commercial Real Estate Financing

Posted on Monday, February 14, 2011


Mortgage bankers originated $110 billion of commercial and multifamily mortgages during 2010 – an increase of 36 percent from 2009, according to preliminary estimates released by the Mortgage Bankers Association Monday. The bulk of that increase came in the fourth quarter of last year.
Life insurance companies were a leading source of lending in 2010, with origination volumes 155 percent higher than 2009 levels.
Government-backed agencies also saw strong volumes, with increases in production for the Federal Housing Administration (FHA) and Ginnie Mae offsetting a decline in production for Fannie Mae and Freddie Mac.
Originations by commercial banks saw a year-over-year decline, while originations for commercial mortgage-backed securities (CMBS) conduits increased more than 10-fold. MBA said in its report.
Jamie Woodwell, MBA’s VP of commercial real estate research, commented, “Life companies and FHA led the increase in dollar volumes, but a large percentage increase in originations for CMBS is likely the most symbolic change from last year.”
A separate report issued by Jones Lang LaSalle at MBA’s commercial real estate and multifamily housing convention in San Diego Monday corroborates the trade group’s assessment of a resurgence in the U.S. CMBS market, although the numbers stack up a little differently.
Jones Lang LaSalle’s report shows that in 2010, total new CMBS issuance in the United States rose to $10.9 billion, up fivefold from the $2.1 billion overall issuance in 2009.
In addition, the company says investors of U.S. CMBS have driven prices on bonds to their highest level in more than two years as they wager that the worst is over for commercial real estate.
Total issuance in 2011 is expected to top $40 billion, providing added liquidity to owners with maturing loans
to refinance, according to Jones Lang LaSalle. The company says the first quarter of 2011 is already off to a strong start with upwards of $10 billion in the pipeline.
“Two years ago, lenders and investors here at the MBA show were saying: ‘We’ll be in heaven in 2011,’ and we’re far closer to that fully functioning debt market than we’ve seen since the recession,” said Tom Fish, co-head and executive managing director of Jones Lang LaSalle’s real estate investment banking practice.
Fish went on to explain, “Given the financing spigot temporarily turned off, a natural evolution occurred last year in which lenders returned to safe lending – targeting only low-leveraged, trophy assets. Now, demand has begun to exceed supply, and lenders are moving more aggressively to place capital.”
Fish says in the following months, he expects to see lenders move increasingly up the risk continuum and he is looking for lenders of every type, including life companies, pension funds, commercial banks, and real estate investment trusts (REITs), to ramp up allocations in 2011.
“The primary impediment to financing will be the significant number of overleveraged assets that still require recapitalization and deleveraging,” added Mike Melody, co-head and executive managing director of Jones Lang LaSalle’s real estate investment banking practice.
In terms of distressed loans, Jones Lang LaSalle says the tidal wave of sales activity that was widely predicted in 2009 never materialized as lenders and borrowers worked together to stave off defaults.
However, the firm says loans that were re-set two years ago with short-term financing in hopes of hurdling the drought will be coming due in the months to come, and there should be increased opportunity in loan-to-own plays, as well as deed-in-lieu transfers for many savvy investors.
A second report released by MBA estimates that 11 percent – or $155 billion – of the $1.4 trillion outstanding commercial/multifamily mortgages held by non-bank investors will mature in 2011, and 9 percent – or $125 billion – will come due in 2012.
MBA also issued a third report from the San Diego conference ranking the largest servicers of commercial and multifamily mortgages. Wells Fargo sat at the top of list with $451.1 billion in U.S. master and primary servicing.
PNC’s Midland Loan Services took the No. 2 spot with $337.4 billion, followed by Berkadia Commercial Mortgage with $194.9 billion, Bank of America Merrill Lynch with $126.6 billion, and KeyBank Real Estate Capital with $118.9 billion.
By: Carrie Bay, DS News



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