CMBS, Distress Debt Plays Returning to Market

WASHINGTON, DC—CMBS is back. Almost. Experts speaking at day two of the CRE Finance Council’s Annual Meeting this week said that the securitization industry is becoming more of a factor in commercial real estate, from both a lending and an investment standpoint, but there have been some shifts in the trends.

On the lending side, said Wells Fargo Securities director Steve Kraljic, average loan sizes are starting to shrink. Last year, a typical CMBS loan was $28 million; that figure has dropped to about $19.5 million this year. “That probably makes some sense since balance sheet lenders have moved into the large loan size market and taken some of the business away,” Kraljic noted. Underwritten LTV, meanwhile, is up by just one percentage point over the year to 63%, though leverage is getting pushed a bit more in today’s deals, likely due to pricing and competition. “Investors may have to go a bit lower in the stack to get yield,” he added, but where exactly it will be found—i.e., mezz, construction, etc.—has not yet been determined.