would be a 10% reduction target in business volume from 2012
levels—achieved through some combination of increased pricing, more limited product offerings and tighter overall underwriting standards.
“One of the changes we have seen this year is that, as the GSEs
took their foot off the pedal, CMBS and banks moved in to pick
up the multifamily business,” Olasov says.
Whatever the reason, the CMBS market has clearly surprised
many with its momentum this year, say Nick Prevolos, an investment associate with Franklin Street, and Drew Jennewein, an
associate with the company.
There is much to like about the market now, they say. Prevolos
points to the more conservative underwriting standards that
emerged post-crisis—to say nothing of a more vigilant B-piece
“We are seeing the B-piece tranches monitoring how underwriting is going and insisting that it stays in the realm of reality.
Rating agencies, as well, are monitoring underwriting.”
The Flexibility Factor
Then there is the demand factor. Like always, CMBS will be the
vehicle of last resort for certain borrowers or properties or markets—that is, secondary or tertiary markets or bordering-on-the-edge-of transitional properties.
But CMBS’ permutations of the last several months appear to
be drawing in a new sort of borrower. Consider the growth in
interest-only loans. “That is a function of the increased competition among CMBS shops, at least in part,” says Ballard Spahr’s
“The offering of IO to prospective borrowers is a function of
CMBS’ attempts to win deals. I have seen IO deals with a period
of two years and in one case I have heard of a five-year period.”
The rise in floating-rate CMBS, by contrast, is more of an
appeal to originators—and investors are just riding the trend—
but it is also relevant to borrowers as well, Kessler continues.
“Some borrowers would be happy to lock in financing at a
base level. A lot of these loans are structured with a cap, so it
could be appealing in that scenario.”
Whatever the drivers, floating-rate loans are clearly, if not
making a splash, at least entering the water.
Many of the deals that have come to market this year have
been in the $100-million to $500-million range—they do tend to
be larger in size and/or have a single sponsor—and have
included term loans and construction loans.
To be sure, floating-rate loans comprised a major part of
CMBS originations before the crisis; currently they make up only
But the fact that they are back at all is another surprise, in
what has been a surprising year for CMBS. A surprisingly good
year, that is.
“Twelve months ago, if you told me that floating-rate CMBS
would be coming back, I would have said ‘no way. There is no
appetite for the risk out there,’“ Wrenn says.
“And I would have been wrong.” ◆
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