Real Estate Forum - January 2013

that CMBS became not only highly price competitive, but also competitive with noneconomic terms.

David Maki, SVP of North American
Capital at the Chicago-based Heitman,
dates the shift to September of 2012. “CMBS
has become, essentially, a highly competi-
tive channel for borrowers looking for low-
leverage financing.”
“I think they will give the insurance com-
panies a huge run for their market this
year,” Maki says, “and be very competitive
on high quality deals this year.”
One attraction for low leverage borrow-
ers, Maki points to, is the level of flexibility
CMBS lenders have started offering bor-
rowers on noneconomic terms. Originators
realized they had little choice but to move
in this direction, Maki adds.

Your Property
Our Financing
Fannie Mae
Freddie Mac
FHA
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Heitman and other institutions stay away
from the product.”
He adds: “CMBS has tried to create a
product that is more like a life product.
They have narrowed it to what is needed for
the basics of securitization.”
Indeed the life sector is clearly feeling
the heat from CMBS, with its competitive
price and newly flexible product structure.

In 2012, “we saw CBMS reemerge as
strong competitor for loans with portfolio
lenders,” Prudential’s Durning says. “Less
so from a profit perspective but definitely
from an underwriting perspective.”
Northmarq’s Stephenson is also bullish
about the prospects for CMBS in 2013. “I
wouldn’t be surprised to see originations
double in 2013 over 2012.” What happened
in 2008, in short, he says, is now a distant
memory.

All of this activity is very welcome news, if only because there is a huge wave of debt that will be need to be refinanced this year and next, Stephenson says. And even the most troubled of those properties have hope, he continues—not just from the CMBS community, but from other players as well.

“More and more lenders out there are offering mezzanine and preferred equity in order to prop up properties that might be overleveraged,” he says. “We did a lot more of that kind of business in 2012 than any previous year since the crash, and we believe 2013 will be an even bigger year for mezzanine and preferred equity.”

CMBS
Life Company

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Whither the Agencies?

If all this sounds like competition for the GSEs, that’s because it is. Multifamily properties are the most coveted of assets lenders want to acquire for their portfolios. The GSEs, though, can count on plenty of businesses even as their competition steps up. Both Fannie Mae and Freddie Mac have been experimenting with their offerings, rolling out such products as floating-rate paper, wrapped securities and shorter-term securitizations. Still, they will focus on their bread-and-butter for 2013—that is, longer-term debt in the ten-year range.

That is just fine with their competitors. Stephenson, for example, doesn’t see agencies increasing their market share. “From our perspective, the agencies have flattened out. They are still doing the majority of multifamily business, but the competition is getting tougher from CMBS and life,” he says.