CMBS spreads have gotten volatile, and that's creating uncertainty...and ultimately fewer deals. Berkadia senior managing directors Cutt Ableson and Jon Gilfillan tell us CMBS pricing has widened by 50 to 75 bps, which is the typical spread between a 10-year term multifamily CMBS and agency deal. Projected AAA spreads are expected to range 135 to 170 bps in 2016 while BBB- spreads are projected to range a major 700 to 900 bps. That'll likely cause a slowdown in CMBS volume this summer as risk retention costs begin to take effect, although there has been a recent rally in the market.

What'll bridge the gap from CMBS volatility? Cutt points out that the agencies are still active. Berkadia’s Houston office has closed four Houston apartment deals with Fannie/Freddie in the last two months, including Villas at Cypresswood, pictured. But the GSEs' $30B caps will start to come into play this summer and take them out of contention. Jon thinks preferred equity and mezzanine debt will come into play for financing shortfalls. According to Cutt, markets will need an alternative capital source. Debt funds and life insurance companies may step in but with a much higher cost of capital.

Money centers paint Houston with a wide brush. Jon and Cutt work daily to combat that perception with facts. They’ve been pleasantly surprised with the reception of lenders during the downturn. There are soft markets in Houston, like the Energy Corridor, but there’s opportunity on the east side, where petrochemical business is growing. Berkadia Houston remains busy, with over $2B in total transactions in its pipeline.