CHICAGO-With pension funds and life insurance companies flooding major US markets with debt capital, CMBS lenders have turned their attention to secondary markets. The shift is detailed in Jones Lang LaSalle’s 2011 Spring 2011 Investor Outlook report.
According to JLL’s report, the US debt markets have experienced significant easing with the return of the CMBS market. Through April 2011, $9 billion in CMBS was issued, far exceeding the nominal amount issued in the same period a year earlier, and already more than three-quarters of the total issuance recorded for the whole of 2010. Current estimates for 2011 issuance range between $40 billion to $60 billion.
“There’s very strong interest in secondary and tertiary markets from CMBS lenders,” says Paul House, a managing director with JLL’s real estate investment banking team in Houston. “If there’s cash flow, they’re not as concerned about where the asset is located. So, secondary markets and tertiary markets are a good fit for CMBS lenders.”
House tells GlobeSt.com that the availability of CMBS debt for borrowers in secondary and tertiary markets has increased significantly over the past 12 months as more financial institutions have rolled out new CMBS programs.
And, as more lenders have made debt available to quality sponsors in major markets, CMBS lenders have been forced to consider deals in secondary and tertiary markets. “Life companies and pension funds are not going to secondary and tertiary markets such as El Paso, TX, or Birmingham, AL,” House explains. “They’re focused on gateway cities and other major markets.”
House provides the example of a $70 million office refinance deal in a secondary market that received multiple CMBS proposals. “I would estimate that 75% of CMBS lenders were interested in that deal,” he says.
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