The commercial mortgage backed securities (CMBS) market is expected to end 2014 on solid footing, with loan delinquency rates falling and new issuance likely to surpass last year’s level, according to market observers.
The CMBS delinquency rate fell to 5.8 percent in November, its lowest level in five years, Trepp, LLC reported. As of Dec. 1, delinquencies have fallen 163 basis points, down from 7.4 percent in December 2013, according to Trepp.
“The CMBS market is heading into year-end with a lot of momentum,” said Manus Clancy, Trepp senior managing director. Increased volume, falling delinquency levels, a drop in the Treasury 10-year note yield and lower energy costs have produced a scenario in which “the wind is fully at the market’s back,” he said.
Trepp research associate Joe McBride said new CMBS issuance in 2014 should be just shy of $100 billion, in line with initial estimates for the year. CMBS issuance totaled approximately $86 billion in 2013. McBride noted that a number of factors have weighed on the CMBS market this year, including the interest rate concerns, lending standards, and the upcoming maturation of CMBS loans issued between 2005 and 2007.
While those concerns will likely persist, McBride said, early estimates point to 2015 CMBS issuance volume matching 2014 levels.
CMBS Lenders in Competitive Position for 2015
“CMBS lenders are certainly in a good competitive position for 2015,” said Sam Chandan, chief economist of Chandan Economics and a professor of real estate development at the University of Pennsylvania’s Wharton School. “I think that will allow them to capture a larger share of the market than they did in 2014.”
Ben Thypin, director of market analysis at Real Capital Analytics, said that while new CMBS issuance of about $100 billion in 2014 is still a far cry from the $230 billion raised in 2007 prior to the financial crisis, he noted that “we’re heading in the right direction.”
As for the large number of maturing CMBS loans that come due in 2015, 2016 and 2017, “the capital is certainly out there to refinance these loans,” Thypin said.
“We’re already starting to see new CMBS loans refinance old CMBS loans, often through the same relationship. So, so far, so good,” he added.
Read More: https://www.reit.com/news/articles/cmbs-market-boosted-positive-fundamentals-2014-comes-close
The city’s affordable housing finance unit is planning for the first time to issue bonds that will be packaged as commercial mortgage backed securities. This inaugural group of loans pegged at $550 million will be secured by the market-rate residential high-rise 8 Spruce Street, known as New York by Gehry, located in Lower Manhattan.
The Housing Development Corporation, which generally focuses on financing affordable housing for the city, will issue the bonds, which will then be packaged and divided into different risk levels and sold into the CMBS market. Wells Fargo will be the loan servicer.
Sources within the city agency said there were special circumstances that made the CMBS structure useful here, and it was not expected to become a common practice. This bond deal is similar to two the state’s New York Liberty Development Corporation structured to finance 1 Bryant Park and 7 World Trade Center, but this is the first for the city.
Nonetheless, insiders said it showed an inventive use of market tools.
“It demonstrates HDC’s willingness to get creative on structuring in order to diversify how HDC-financed projects are capitalized,” Ben Thypin, director of market analysis with data firm Real Capital Analytics, said.
On the heels of a report that Fortress Investment Group LLC is close to buyingStuyvesant Town-Peter Cooper Village for about $4.7 billion, commercial real estate finance specialists are wondering how the suitor can finance the deal. After all, the last time the behemoth housing complex was sold, things didn’t go so well.
Fortress is reportedly looking to bring in equity partners in the planned purchase, which Bloomberg News first reported on Wednesday. Stuyvesant Town, which occupies 80 acres and holds 11,231 apartments in 110 buildings, is the largest rental complex in Manhattan.
To foot the $4.7 billion bill, equity partners alone may not be enough, sources told Mortgage Observer Weekly. One possibility is for Fortress to use a combination of equity, senior debt and mezzanine debt, plus any credit it receives for holding existing debt, which can be converted to equity in the event of a sale, said Ben Thypin, the director of market analysis at Real Capital Analytics.
“The senior debt could either be funded by a group of insurance companies or similar institutions like pension funds or, more likely, by conduit lenders who then packaged the senior debt into CMBS, probably as a single- asset CMBS deal,” said Mr. Thypin.
Read More: http://commercialobserver.com/2014/05/%EF%BF%BChow-can-fortress-finance-its-4-7b-stuy-town-buy/
Fortress Investment Group LLC is preparing a bid to buy Stuyvesant Town-Peter Cooper Village, the Manhattanapartment complex whose future has been in limbo since its owners defaulted on a $3 billion mortgage four years ago, according to a person familiar with the plans.
The New York-based private-equity firm is seeking financing for an offer valued at about $4.7 billion, said the person, who asked not to be identified because the discussions are private. A deal would involve bringing in equity partners to contribute cash, the person said.
Stuyvesant Town, Manhattan’s biggest rental community, is currently under the control of CWCapital Asset Management LLC, which is owned by Fortress. CWCapital is a special servicer in charge of representing bondholders after owners Tishman Speyer Properties LP and BlackRock Inc. walked away from their investment in January 2010, one of the highest-profile casualties of the property-market crash. New York apartment values have since jumped as rental demand rebounds.
“Stuytown has certainly come a long way since the depths of the crisis,” said Ben Thypin, director for market analysis at real estate research firm Real Capital Analytics Inc. The $4.7 billion value considered by Fortress “reflects that resurgence in pricing.”
Read More: http://www.bloomberg.com/news/2014-05-13/fortress-said-to-be-preparing-bid-to-buy-stuyvesant-town.html
New York’s real estate professionals are generally an optimistic crowd, but when you ask them about buying loans or properties controlled by special servicers, they turn cool.
In fact, a handful of Manhattan investment sales brokers and company principals say they have given up hunting for opportunities involving special servicers for their clients. Some say their impression is that special servicers rarely sell and, therefore, are not worth approaching.
Others gripe that buying loans from these servicers is so difficult that it’s not worth the trouble.
“What is clear to me is that there are two huge trends among the servicers,” said Ben Thypin, director of market analysis at RCA. “First, they are extremely averse to foreclosure and taking possession of collateral. The second big trend is that servicers are much more likely to liquidate a troubled loan than restructure it.”
Thypin said that if these trends continue, “The most likely outcome for the 75 assets still in trouble are likely to be a short sale, note sale or sale and loan assumption.”
Read More: http://therealdeal.com/issues_articles/an-insiders-game/
When The Blackstone Group agreed to buy the US mall portfolio of Sydney-based Centro Properties Group last March for $9.4 billion, one might have imagined the deal impossible to finance. However, a significant portion of the investment was funded via the commercial mortgage backed securities (CMBS) market in a sign that this relatively dormant part of real estate finance was re-awakening.
“These private equity firms are hoping the CMBS market is
available both to finance their acquisitions and refinance maturing
loans on properties they already own,” says Ben Thypin,
director of market analysis at Real Capital Analytics. “So it’svery much in their best interest to have a robust CMBS market.”
Read More: http://www.perenews.com/Article.aspx?aID=0&article=65935 (login required)
The $127 million refinance of Harbor Group International’s 200 Public Square office tower in downtown Cleveland, announced last Friday, is both one of the larger recent CRE refis and an exemplar of the current refi trend. The existing CMBS financing on the 45-story, 1,264,000-square-foot class A building was refinanced with a new 10-year CMBS loan provided by JPMorgan Chase.
It’s hard to quantify, but there has indeed been a recent surge in refis, Ben Thypin, director of market analysis for Real Capital Analytics, told Commercial Property Executive. “There are a lot of loans maturing,” he said, typically five- and seven-year loans taken out during the active period before the recession.
Read More: http://www.cpexecutive.com/finance/127m-loan-on-cleveland-office-typical-of-refi-trend/
Around this time last year, many conduit lenders were getting pretty excited.
The CMBS industry appeared to be back in full force, quoting rates that were competitive with Fannie Mae and Freddie Mac for the first time in years. Borrowers suddenly had more options, agency and balance-sheet lenders suddenly had more competition, and the industry as a whole was enticed by the prospect of more liquidity.
Yet, as soon as it came, it disappeared—rates came down too far, too fast, and investors pushed back. Then, capital markets shocks like the debt ceiling standoff and the Greek debt crisis continued to derail the CMBS industry’s momentum.
But now, through the first few months of 2012, CMBS pricing continues to fall.
Will that momentum build to a point where conduits are again giving the GSEs a run for their money? “I’m not even sure if that’s the right way to look at it because the rates being offered by the GSEs right now are so good,” says Ben Thypin, a senior market analyst for New York-based Real Capital Analytics. “CMBS is lending on product the GSEs wouldn’t lend on—it may be pre-stabilized properties, or deals in secondary or tertiary markets.”
Read More: http://multifamilyexecutive.com/cmbs/cmbs-heats-up-but-is-it-back-to-stay.aspx
The market for US commercial property loans faces a test this year as a wave of debt from the credit boom matures while underlying property values remain sharply lower than when these deals were struck.
Industry watchers are expecting increased recapitalisations, refinancings and building sales in 2012 as commercial loan holders grapple with the debt.
... At the peak of the US CMBS market in 2007, approximately $233bn in loans were originated compared with $32bn in 2011, said Real Capital Analytics.
“While the CMBS market has thawed measurably over the past three years, it still has a long way to come back,” said Ben Carlos Thypin, director of market analysis at Real Capital Analytics. “If a large enough group of the borrowers facing maturities aren’t able to refinance, the liquidation of those assets may put enough downward pressure on pricing to temper the market’s recovery.”
“CMBS’ role in the market is symbiotic; it significantly widens the pool of available finance for the market but if there aren’t enough attractive assets to lend against, CMBS conduits have trouble generating the critical mass of loans required to run their operations profitably,” he added.
Although volatility in the capital markets over the summer - especially following the downgrade of U.S. Treasuries on Aug. 5 - has spooked commercial mortgage-backed securities (CMBS) market participants, this financing source is definitely back, say experts, while not as strong as anticipated earlier in the year. I In 201 1, new CMBS issuance may not top $30 billion, far below estimates of $30 billion to $50 billion early in the year. Still, anywhere from $5 billion to $8 billion was in the CMBS pipeline as of the end of August.
..."CMBS has a smaller proportion of commercial real estate originations than at the height of the market in 2007, when it accounted for over 50 percent of the volume of new originations," says Ben Carlos Thypin, director of market analysis at RCA.
"In 2011, as of the end of August, CMBS made up about 21 percent of commercial real estate origination volume - slightly down from 26 percent for all of 2010, but higher than in 2009 when it accounted for only 10 percent of commercial real estate originations."
CMBS competes with a variety of lending sources, including foreign and domestic banks, thrifts, life insurance companies, and Fannie Mae and Freddie Mac, with the last two sources only competing in the multifamily arena.
..."Deals financed by CMBS are less likely to happen in primary markets, because there is more competition for loans in those markets," adds Thypin. "Players like big insurance companies, and foreign banks are less inclined to go out of major international cities likeNew York and San Francisco, so they offer more favorable terms in those markets to attract borrowers - terms that are better than what CMBS can offer," he says. "As a result, CMBS is restricted to smaller assets in primary markets and strong assets in secondary and tertiary markets."
And the CMBS market is limited in other ways. "Despite the CMBS market having made a comeback, it hasn't come back enough to allow for very large loans that get distributed across several different bond issues," says Thypin.
"Now, people are concerned that the market could freeze up or slow down, so it isn't operating consistently enough for a conduit lender to be able to make such large loans," he says. "The issue here is that there are not many large CMBS loans being made on single properties, because the risk is so concentrated in that single property/' adds Thypin.
"However, some large CMBS loans are being made on large portfolios," says Thypin. "For example, Wells Fargo, Deutsche Bank and Barclays recently teamed up to provide $1.4 billion in debt for a portfolio of 107 shopping centers owned by Blackstone, $1 billion of which was securitized," he says. "A CMBS lender can make such a loan and turn it into a single CMBS bond issue. These types of loans are being made today because collateral is spread out and so is the risk," says Thypin.
Read More: http://insurancenewsnet.com/article.aspx?id=291181&type=newswires
Ben Carlos Thypin
I am currently the co-founder of Quantierra, the world's first data driven real estate brokerage and investment manager. In my former life as Director of Market Analysis at Real Capital Analytics, I worked with press outlets large and small to provide them with great data and insightful commentary. Here are some of the results of this collaboration. For the rest, please check out the News Archive.