Public Private Partnerships…What are They Good For?

By Duke Dennis Over its 25-year operating history, Metropolitan Capital Advisors (MCA) has worked on numerous Public Private Partnership (PPP) transaction financings. PPPs have increasingly Read more

The Power of RECA (Real Estate Capital Alliance)

By: Scott Lynn and Andrew Hanzl Metropolitan Capital Advisors (“MCA”) is a member of the Real Estate Capital Alliance ("RECA"), a professional association of 18 Read more

Getting Creative: HUD 221 (D) (4)

By: Andrew Hanzl Take notice! The landscape is shifting: In anticipation of a market slow-down, commercial real estate lenders are dialing back their leverage and Read more

Private Lenders: Filling the Void

by Roger Wyche There will be approximately $96 billion of CMBS loan expirations during 2017. CMBS lenders, therefore, have been counting on refinancing  Borrowers to Read more

A Bridge (Loan) to Everywhere

By Charley Babb Do you remember John McCain’s famous “Bridge to Nowhere” speech from 2005? As the Arizona Senator, and then later as the Republican Read more

Limited Service Hotels are, well…limited!

By Todd McNeill In recent times, the Limited Service Hotel sector’s reputation has steadily declined in the eyes of the finance industry. Once the darling Read more

TrumpCare and the Effect on Healthcare Commercial Real Estate Market

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What is the TRUMP Effect on Commercial Real Estate? 4 Key Points

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Whither CRE Construction Lending?

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The Good, the Bad, the Texas High-Speed Rail Line

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UT Ranked #1 in Commercial Real Estate Yardage

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2017: Not a Forecast (Just Some Thoughts to Ponder) for the CRE Market

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What is PACE Financing?

By Andrew Hanzl Global warming is now a widely accepted concern. As real estate professionals, what role can we play to ensure environmental sustainability? One Read more

Banks Reign in Leverage in Effort to Curb Apartment Construction

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Risk Retention, Risky Business?

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Choppy CMBS Market Hoping For Resurgence

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cmbs markets

Choppy CMBS Market Hoping For Resurgence

By Charley Babb

CMBS issuance for the first quarter of 2016 was roughly half of the production for the same period in 2015. This has been counter-intuitive for most of us in the commercial real estate lending community as reasonably positive US economic performance combined with significant CMBS legacy maturities should have resulted in 2016 outpacing last year’s production. Many experienced CMBS borrowers are asking “what is going on here?”

In contrast to the previous cycle when aggressive underwriting led to a “bubble”, this time around there are other factors contributing to the instability and uncertainty in the market that perplexes many of our clients. In December, we saw the culmination of fourth quarter spread widening to the point where various participants were unprofitable on their originations. This has led to a reduction in the number of CMBS lenders to under 30 at this point from over 45 at the peak in 2015. Mid-sized origination shops are being squeezed out by larger institutions that are securitizing more frequently.

CMBS bond buyers continue to impact pricing as they weigh the relative values of widened spreads on corporate bonds vis-à-vis CMBS issues. While senior tranches are pricing close to levels that were seen last August, bonds lower in the capital stack continue to lag and the credit curve remains steeper than last summer.

Further uncertainty on the part of issuers lies ahead as the environment becomes more regulated. Regulation AB, Basel III, Dodd-Frank and risk sharing rules will definitely impact the market. You say you don’t know what all of those are; simply read them as “more government regulations intended to ‘safeguard’ the consumer, but resulting in making it more expensive to borrow money.”

cmbs markets

As a result, borrowers who have traditionally looked to CMBS lenders to finance or refinance their properties have elected to look to other capital sources in the past six months. Re-trades on pricing and terms have led to a preference for certainty of execution over leverage. Life insurance companies, banks, and private lenders have provided debt in the Q1 2016 that would have been financed in the CMBS market during the same period last year. There is a catch, however. Some market observers have noted that these alternative sources to CMBS may reach their respective capacity for debt issuance by the end of the third quarter. This may set in motion a potential liquidity crunch late in the year.

Borrowers facing Q4 maturities may be forced to settle for a CMBS execution should lack of liquidity from other sources turn out to be a reality. This is likely good news for a lagging CMBS market as pricing should be higher leading to a return to profitability and hopefully more certainty of execution. That said, fewer options for borrowers will likely provide less favorable terms for them at that juncture.

In conclusion, if a borrower has flexibility in their timing, now might be a better time to access the capital markets rather than later in the year.

Metropolitan Capital Advisors seeks to assist their clients with their commercial real estate financing needs. We welcome the prospect to evaluate your new acquisitions and development opportunities.

The author, Charley Babb, is a Senior Director and Principal in the Denver office of Metropolitan Capital Advisors. Contact Charley Babb at

Posted on by admin in CMBS, Commercial Real Estate Finance Comments Off on Choppy CMBS Market Hoping For Resurgence

Top 5 Reasons Why CMBS Markets Will Be in for a Choppy Summer

by Todd McNeill

CMBS-marketsThe CMBS markets have been moving along rather methodically ever since the gradual resurgence in 2011. The summer of 2012 has started off like a repeat of the summer of 2011 when the United States credit rating was under intense scrutiny from S&P and the stock market continued to seesaw.  This summer’s volatility is centered on the European Sovereign debt crisis and the possible “contagion risk” that is frequently discussed.

If you are in the market for a CMBS mortgage this summer, expect choppy waters as we navigate towards the fall elections.  Below are the top 5 issues that will cause constant swings in the securitization market in the upcoming months:

5.  Growth in the U.S. GDP is too slow to adequately affect the jobless rate.  This constant discussion of the jobless rate will be a solid reminder for all bond and B piece buyers to continue to underwrite real estate with an eye for conservatism.  The most recent growth rate report from the Fed was unchanged at a rate of 1.9% from January through March, which translates to roughly 90,000 jobs a month…not nearly enough to lower theU.S.jobless rate of 8.2%.

4. Banks’ credit ratings.  Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, and Citigroup all suffered credit ratings cuts. The rating agency Moody’s Investors Service said that even though these banks had moved to strengthen their operations, their core trading businesses contained structural weaknesses. In other words, the downgrades reflect the new sober era for Wall Street. “It will make life more difficult for the banks over the long run,” said Andrew Ang, a professor of business at Columbia Business School. “The effect of ratings is pervasive.”  These lenders will need to make up their higher cost of borrowing by charging more for their services.  This will trickle down to the borrowers.

cmbs-markets-s-and-p3. General stock market volatility.  Expect the stock market to react to almost every one of the issues mentioned herein.  There will be plenty of financial uncertainty, political turmoil, and debt crises looming in Europe and theU.S.  The U.S.presidential election in November will only add to this buffet of uncertainty, and  the stock market typically hates uncertainty.

2. No depth in the “B” piece market.  As of June 2012, almost 2 years into the CMBS 2.0 life cycle, there are still only seven (7) active “B” piece buyers in the market.  So, it is these limited “B” piece buyers who are driving the credit quality of the underwriting.  News travels fast among the securitizations shops as to what deals get “kicked out” of the pools and for what reasons.  As each CMBS lender pushes the envelope on any aspect of underwriting, the punishments handed down by the “B” buyer reverberate quickly around the market.  Until more buyers come into this space, expect constant spread movement up or down depending on the news from the street when a CMBS shop is in the market with a securitization.

1.  The European “tinder box.” Europe is going to be working through issues for quite some time.  Many predict that Greece will be leaving the Euro and that the EU is simply buying time to figure out how to unwind Greece from the Euro without creating shockwaves through the credit markets.  The recession in Europe will push down theU.S.economy as well.  The U.S. Treasury is clearly the safest place to be, as the market has signaled since the beginning of summer.  The U.S. Treasury rate is at historic lows, and commodities have also been dropping steadily.  In addition to Greece, Spain’s and Italy’s borrowing costs have soared up to 7%, which has both teetering on the brink of insolvency.  An argument could be made that a massive wave of defaults through Europe could seize credit markets for a period of time (brief or extended).  The news, good and bad, coming from Europe will have the markets reacting negatively and positively all summer.

The purpose of the blog is not to suggest that you should not borrow money using CMBS.  It is simply to say that if you plan on borrowing from CMBS lenders, there are several things you should know about how to handle the process.

  • First, you should move as quickly as possible through the process.  Get the 3rd party vendors everything they need in a timely fashion and be available to answer questions so that the reports do not get delayed.
  •  In the same fashion, make sure that the lender is receiving all of its checklist items as quickly as you can.
  • Depending on the need for speed, it might be worth the risk to engage legal counsel early so that when approval is obtained, you can close quickly.
  •  Look at the calendar when working through the process, and minimize the probability of your closing to land around an announcement from either the E.U. or the Fed.

In summary, get through the application process with urgency to minimize your exposure to external events.  Using a brokerage firm like Metropolitan Capital Advisors that has its own in-house processing and closing department to assist the borrower in getting through the lender checklists, 3rd parties, and Estoppel & SNDAs could ultimately provide huge savings to the borrower and might even be the difference between making the deal and having the deal come up short.

Posted on by Scott Lynn in CMBS Comments Off on Top 5 Reasons Why CMBS Markets Will Be in for a Choppy Summer