More Recovery Indicators: CMBS Bonds Are Bouncing Back
On the credit side of CRE we have more signs of a recovery that will be felt outside of the primary markets – and it’s about time. Wall Street is reentering the market for commercial real estate, as Bloomberg reported today:
The rebound in commercial-mortgage backed securities is benefiting borrowers with smaller properties and in areas outside the biggest cities. CMBS issuers fare better in these markets because they can get the higher rates they need to cover the costs of packaging and selling loans. Institutions that keep mortgages on their balance sheets, including insurance companies and non-U.S. banks, focus on top-tier buildings in large metropolitan areas.
“Loans from CMBS lenders are more often on smaller assets or Class B office properties,” said Ben Thypin, an analyst at Real Capital Analytics Inc., a commercial-property research company based in New York. “They haven’t been able to compete that well with insurance companies and international lenders in the office market on the highest-quality buildings.”
About 71 percent of commercial-property lending by insurance companies was done in primary markets in 2010, compared with 67 percent for foreign banks and 47 percent for CMBS lenders, according to Real Capital. About one-third of loans from CMBS firms were in tertiary markets, compared with 6.6 percent for insurance companies and 12 percent for non-U.S. banks, the data show.