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Three CMBS Trends to Watch in 2015

WASHINGTON DC 03.16.2017

CAPITAL MARKETS AND REAL ESTATE FINANCE

Investing in 2017, Hot Markets, and the Ever-Changing Capital Stack

Mark Hertz -- AIG Global Real Estate
Sujan Patel -- Colony NorthStar
Joe Carter -- Wells Fargo
Three CMBS Trends to Watch in 2015

Despite the economy’s brighter outlook, we still live in a financially distressed world, says Hart Advisors Group CEO Tanya Little (left, with Hudson Peters' Janice Peters at Bisnow's Power Women event last summer).

1. Distressed Debt

While DFW market is going strong, many markets throughout the country are still distressed, especially in the secondary and tertiary markets where job markets have not yet recovered, Tanya tells us. Commercial real estate rents still haven't seen a full rent recovery (back to 2007 rates), even in some major markets. Interest rates are at record lows; however, there is a real fear that interest rates will rise later this year, driving more defeased loans in the CMBS space.

Three CMBS Trends to Watch in 2015

2. Loan Maturities Coming

There’s a tremendous number of maturities that will fuel the CMBS market this year, as well as the next two years, Tanya says. In 2015 alone, more than $70B in CMBS will be maturing and while many of these loans have recovered, a solid 25% of them are reported on watch lists or are in special servicing (Source: Morningstar Credit Ratings). For stabilized assets (which Tanya is seeing more and more locally), CMBS is a favorite. Borrowers are looking at non-recourse 10-year money at low rates, she tells us. Regardless of product type, CMBS can be extremely attractive for borrowers to lock in 10-year rates, especially with rising interest rates suggested by the Fed for later this year. There should be a flurry of activity this quarter for those owners who can refi or put debt on their product sooner rather than later, she says. (Dallas Federal Reserve Bank pictured.)

Three CMBS Trends to Watch in 2015

3. Strong Originations

CMBS originations will continue to grow, likely topping $100M in 2015, Tanya tells us. But, underwriting standards weakened in 2014, which could lead to future issues like we saw during the recession. There’s more than 40 different CMBS origination platforms competing for the same product. As a result, Tanya thinks that origination underwriting standards may continue to decline as lenders fight to win deals. Opportunities are abundant for any type of commercial real estate asset because there is still an enormous amount of capital in the market.