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Where Is CMBS And Other Lending Headed

There will be a shortage of capital for refinancing many loans for several years. CMBS may become a lesser proposrtion of the market.

By Joel Ross | Updated on March 11, 2012

The CMBS new issuance is hard to predict at this point, but there seems to be a consensus that it will range from $40- $50 billion for 2012. Things are picking up, but there are still only a relatively small number of issuers, and pools remain modest in size at around $1.2 billion. While there are a number of potential issuers sitting on the sidelines, it is unclear when more will actually have allocations to step back in. There is also still a reluctance to lend on smaller, secondary and tertiary markets. It is likely that the originations will remain mostly larger market focused and larger transaction sized, with the average around $20-30 million. That portends an origination of a limited dollar volume for the rest of this year and likely 2013.

Dodd Frank rules and other regulatory restraints, capital requirement, and other regulatory constraints will keep originations limited by constraining allocations of capital to CMBS, and much tighter underwriting. When CMBS 1.0 began in 1993, there was very tight underwriting due to the scars from the S&L crisis. That lasted quite a few years. It is likely that tight underwriting will remain the case for many years into the future this time as well. There are also many fewer potential issuers of size. Lehman, Bear and others are gone, Credit Suisse shut down CMBS, and others simply went back to being banks and not issuers. It is unlikely that B of A or JP Morgan will ramp up originations to anywhere near the levels of 2007. That is not likely to change even though several others like Cantor have entered the market. There is simply a greatly reduced capacity to originate and that is not going to change.

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