Discussions about the commercial mortgage-backed securities market in 2008 and early 2009 might have started jokingly with a question: “What market?”
But few people in the real estate industry have been in a joking mood because the market for commercial mortgage-backed securities — secured by loans on commercial properties that can provide liquidity for real estate investors and commercial lenders — has been largely nonexistent.
To some real estate experts, that’s meant a critical source of commercial real estate financing has all but disappeared. In 2006, commercial mortgage-backed securities origination totaled $203 billion, said John Morran, a founding principal with Texas Realty Capital. In 2007, it topped out at $238 billion, and in 2009, it’s toppled to less than $1 billion.
But the market for such securities may be coming back, some real estate experts say, and that could mean better overall health for the commercial real estate market nationally and locally.
At least two investment banks have announced issuances in the past several weeks, and some speculate that investor demand is returning.
“Since these two issuances [from Bank of America and JPMorgan] have priced and traded, that has helped restore some confidence that there’s demand” said David Thibodeaux, managing director of evaluation and appraisal for CB Richard Ellis. “My guess is that the window will open slowly, and there will be as much lending by structural lenders like life insurance [companies] as” from the commercial mortgage-backed securities market.
Austin-based Amherst Securities Group LP announced earlier this month that it hired a Citigroup analyst to launch the company’s entrance into the commercial mortgage-backed securities market, according to industry publication Default Servicing News. Amherst executives couldn’t be reached for comment.
The return of commercial mortgage-backed securities could help avert a precipitous collapse in commercial real estate, Thibodeaux said. In Central Texas and other markets, he said, initial loans will target strong assets — those meeting debt requirements and with good tenancy and good location. In the Austin area there’s an excessive supply of office and industrial space, he added, and there may not be anything that save some of those assets from foreclosure.
Thibodeaux said the area, however, is starting to see some investment-grade trades in local commercial real estate, which hasn’t happened to any significant degree since early 2008.
Morran said that while he thinks the window for commercial mortgage-backed securities has cracked open slightly, it’s limited and will likely be geared more toward large owners and operators like national real estate investment trusts. So for Central Texas, that window hasn’t yet emerged.
“I think, given the lack of infrastructure that’s left remaining in the [commercial mortgage-backed securities] market to originate new loans, they will focus on large transactions, and not on smaller transactions that you’d probably find in the Austin market,” Morran said.
Source: Kate Harrington (2009). A good sign for commercial real estate? Austin Business Journal Published Dec 18, 2009 Viewed Dec 22, 2009, http://www.bizjournals.com/austin/stories/2009/12/21/editorial3.html?b=1261371600%5e2627971&s=industry&i=commercial_real_estate
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