Ronen: We are seeing borrowers shy away from CMBS. Your typical borrower does not want to be watching the treasuries on a daily basis and trying to figure out what is going to happen to their spread. They want to have some certainty of execution, and CMBS lenders have not been able to provide that because of the way that they are structured and because of the way that they are doing their business. The loans are going to other sources, like bridge lenders, banks or to a lesser extent, life companies. The impact has been twofold on the buy side. When someone has assumed that they were going to get CMBS financing, even if that financing exists, they are less likely to take it. They are underwriting less leverage, for the most part, which is impacting the prices that they are willing to pay because the sponsors' expectations are still the same. They are getting less leverage and at terms that are more constrained, like no interest only and leverage up to 65%, which is typical of the major money center banks.

GlobeSt.com: In 2016 and 2017, there is a tremendous amount of CMBS debt that is going to be refinanced. How will this impact those borrowers looking to refinance their CMBS debt?

Ronen: My initial hypothesis is that we will need to bring in either equity or some other subordinate debt in the form of either mezzanine or some sort of preferred equity to be able to refinance those maturing loan. What I see initially as an issue is loans that are in secondary and tertiary markets or product types that are less favorable to the banks and the life companies because the bulk of that business is going to go to banks and or debt funds or life companies. In general, the buckets of capital that you have with the banks and the life companies is relatively fixed. The banks have been going through their own regulatory changes, and that is creating a lot more oversight and a lot less flexibility in terms of being able to expand their balance sheet lending and exposure to real estate. The life companies historically have had capacity, but that capacity has remained relatively fixed, and they are focused on high-quality product in primary markets. It is going to create an opportunity for the unregulated lenders, like some of the debt funds out there as well as the private equity operations to fill in the gap.

GlobeSt.com: How will this play out over the year?

Ronen: I think it is going to take a lot for the items that are impacting CMBS to get sorted out. I think eventually it will get sorted out. The big question mark is how quickly will the borrowers come back and be willing to go through the CMBS process and try out the new process. Everything that I have read from industry groups expect that the volume will probably be half of what it was last year.

LOS ANGELES—The CMBS market is starting to slow down. As of February 12, CMBS issuances were at $6.5 billion, a significant drop compared with the $13.7 billion in issuances for the same period in 2015. According to Shlomi Ronen, managing principal and founder of Dekel Capital, says that this is a trend we can expect to continue through the year, with CMBS volumes expected to be half of 2015. To find out more about the slow down in the CMBS markets, where borrowers are going and how this will affect the tremendous CMBS debt that is going to be refinanced this year, we sat down with Ronen for an exclusive interview.

GlobeSt.com: Why are we seeing this slow down in the CMBS Market?

Shlomi Ronen: We've got a confluence of three events happening. On the regulatory side, there are new regulations being put in place on risk retention, which is starting to impact the B-piece buyer and affecting the way that they are underwriting the deals. That has caused more loans to get kicked out and terms being changed with respect to interest only and other things that really drive the pay off from the B-piece of the deal. On the capital markets side, the treasuries have dropped to the point where the triple-A buyers aren't meeting the minimum yield requirements. So, the triple-A buyers have widen down substantially since last summer. Even though we have seen our baseline drop, the triple-A buyers are demanding a higher spread to be able to meet their own return threshold. Lastly, some of the lower-rated tranches, which are equivalent to the corporate junk bonds, are having a hard time getting sold off because of the issues that have been happening in the corporate junk bond market as it relates to energy companies and the potential impact that the energy companies are going to have on the market should they default. Those three things are all happening at once. This is different from 2007 and 2008 when we had a liquidity issue. What is happening here is that the playing field is changing in a number of different ways and it is causing angst and a lot of uncertainty to the originators.

GlobeSt.com: What does this mean for the capital markets when we have this level of uncertainty?

Ronen: We are seeing borrowers shy away from CMBS. Your typical borrower does not want to be watching the treasuries on a daily basis and trying to figure out what is going to happen to their spread. They want to have some certainty of execution, and CMBS lenders have not been able to provide that because of the way that they are structured and because of the way that they are doing their business. The loans are going to other sources, like bridge lenders, banks or to a lesser extent, life companies. The impact has been twofold on the buy side. When someone has assumed that they were going to get CMBS financing, even if that financing exists, they are less likely to take it. They are underwriting less leverage, for the most part, which is impacting the prices that they are willing to pay because the sponsors' expectations are still the same. They are getting less leverage and at terms that are more constrained, like no interest only and leverage up to 65%, which is typical of the major money center banks.

GlobeSt.com: In 2016 and 2017, there is a tremendous amount of CMBS debt that is going to be refinanced. How will this impact those borrowers looking to refinance their CMBS debt?

Ronen: My initial hypothesis is that we will need to bring in either equity or some other subordinate debt in the form of either mezzanine or some sort of preferred equity to be able to refinance those maturing loan. What I see initially as an issue is loans that are in secondary and tertiary markets or product types that are less favorable to the banks and the life companies because the bulk of that business is going to go to banks and or debt funds or life companies. In general, the buckets of capital that you have with the banks and the life companies is relatively fixed. The banks have been going through their own regulatory changes, and that is creating a lot more oversight and a lot less flexibility in terms of being able to expand their balance sheet lending and exposure to real estate. The life companies historically have had capacity, but that capacity has remained relatively fixed, and they are focused on high-quality product in primary markets. It is going to create an opportunity for the unregulated lenders, like some of the debt funds out there as well as the private equity operations to fill in the gap.

GlobeSt.com: How will this play out over the year?

Ronen: I think it is going to take a lot for the items that are impacting CMBS to get sorted out. I think eventually it will get sorted out. The big question mark is how quickly will the borrowers come back and be willing to go through the CMBS process and try out the new process. Everything that I have read from industry groups expect that the volume will probably be half of what it was last year.