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The Resurrection of CMBS

NEW YORK CITY-New-issue CMBS isn't about to reach 2007 levels of $200 billion-plus, but Trepp's Fink says a planned $500-million deal from RBS 'bodes well.'

By Paul Bubny | Updated on March 31, 2010

NEW YORK CITY-Reports that the Royal Bank of Scotland is preparing a $500-million CMBS bond deal, the first of 2010, bode well for the near term, experts tell GlobeSt.com. “It’s a good harbinger for what we are expecting and hoping is a recovery in commercial real estate lending,” says Patrick Sargent, president of the Commercial Real Estate Finance Council. In particular, Sargent tells GlobeSt.com that the multiple-borrower nature of this issue, in contrast to the handful of single-borrower deals that occurred at the end of 2009, augurs a return to “more of the traditional conduit-type lending.”

However, the deal flow that emits from the spigot this year is not going to compare in volume to what the industry experienced in 2007, when sales reached $232.4 billion. “We’re not going back to a $200-billion-a-year market,” Tom Fink, managing director of Trepp LLC, tells GlobeSt.com. “But $20 billion to $30 billion of new-issue CMBS this year would be a huge step in the right direction. Given the amount of time it takes to get a deal done start to finish, the fact that they’re able to put together a deal this early in the year bodes well for the market.”

That still-developing market for new CMBS coexists with the continuing fallout of the pre-2008 market. In its monthly CMBS delinquency report issued earlier this week, Realpoint LLC said the default rate had reached 6% in February, with the unpaid balance nearing of overdue loans near $48 billion. Seventy-seven percent of that tally was originated between 2005 and ’07, according to Realpoint. Yet this appears not to be shaking investor confidence for new-issue securities.

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