Commercial Mortgages: CMBS lenders revise expectations about the impact of Dodd-Frank regulations

2page_img2The second half of 2017 has seen a sharp increase in the sale of securities tied to commercial mortgages.

By the end of July the total value of CMBS loans stood at 47.4 billion dollars, a dramatic improvement from the same time last year when the value of CMBS deals was only 37.9 billion. Mortgage Alert predicts that if the rates of CMBS issuance hold steady then the value of securities issued this year will reach 77.6 billion dollars.

The beginning of the year saw virtually no new commercial mortgage bonds being approved. There were no CMBS loans issued in January and the total value of these loans was only 11.1 billion by the end of the first quarter. But August alone saw the approval of 335 CMBS loans. CBRE’s lending momentum index, which tracks the pace of loan closures, recently ticked up by 27 percent. September is on track to the biggest month for CMBS loans this year. Mortgage Alert claims there are 16 billion dollars of loans in the pipeline.

The CMBS market is obviously heating up. The number of CMBS loans approved in June, was the same as the number of loans approved over the entire first quarter. The mortgages that closed in June were valued at 12.5 billion dollars, twice the amount of any other month this year. The new mortgages so far have primarily been tied to mixed use office properties in New York, Los Angeles and Washington DC. Some notable CMBS mortgages include Vorando’s refinance deal for 330 Madison Avenue, a 500 million mortgage with a seven year term. Black Stone Group also recently acquired BioMed Realty trust and used CMBS securities to purchase 15 of the groups office buildings for 825 million dollars.

The providers of of commercial mortgage securities have adapted to the Dodd-Frank risk retention rules that came into effect this year.

CBRE’s Brian Stoffers said “ The recent surge in CMBS mortgages demonstrated that these lenders are becoming increasingly comfortable with the risk retention rules.” The rules stipulated that CMBS lenders maintain a 5 percent stake in every security they issue. Robert Grenda of Morningstar agrees claiming that early concerns about these risk retention rules have dissipated and that “underwriters have gotten comfortable,” while claiming the new rules haven’t significantly impacted the volume of CMBS loans. The recent surge in these types of loans seem to bear out these claims. Smaller players may have exited the CMBS market, but the remaining players have apparently boosted their lending efforts.

While CMBS lenders are issuing new loans at a greater rate, the total volume of commercial mortgage debt held by these lenders continues to decline.

While the second half of this year will prove better than the first for CMBS lenders, their share of mortgage debt in both the commercial and multi-family sectors fell by 2.4 percent, according to the Mortgage Brokers Association. Securities issued prior to the Great Recession are being paid off this year, and demand for new CMBS securities remains historically low. While CMBS lenders have adapted to the new regulations, it remains unclear whether the industry will ever recover its share of the market under the new risk retention rules.


Dennis Dahlberg
Level 4 Funding LLC  Private Hard Money Lender
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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