CMBS financing still has big advantages
CMBS financing may have fallen into disuse during this cycle, but it remains a great middle-of-the-road debt solution for borrowers. Marc Ritchie of Newmark real estate capital describes CMBS as the golden loop solutions, with balanced rates that can be attractive given the right conditions.
“This is the Goldilocks metaphor. Borrowers should explore their alternatives. There is a middle ground where CMBS provides the “right” debt capital solution. Today, CMBS leverage and rates are neither too high nor ridiculously low, ”Ritchie, director at NRC, told GlobeSt.com. “The right set of terms can be extremely attractive. Unfortunately for many borrowers, a CMBS lending solution has become the loan of last choice, perhaps for valid reasons due to a turbulent past, but in its contemporary structure, CMBS offers a compelling option for the demands of creditors. today’s equity.
Specifically, CMBS is a good choice for urban and secondary and tertiary markets. These are often areas where other sources of capital are less aggressive in pricing. “Even the major urban markets on the west and east coasts – think San Francisco, Los Angeles, New York – can benefit from CMBS’s ability to provide an attractive financing solution,” says Ritchie. “With a 65% loan-to-value ratio and a 10-year interest-only structure available, successful execution of CMBS creates significant cash flow throughout the asset ownership lifecycle, which we consider as a determining factor in the current market environment. “
CMBS Funding has lost popularity in large part because of post-close customer service. However, CMBS has a history of best practices, according to Ritchie. “The institutional discipline that guides CMBS underwriting today builds on a legacy of best practices, including refining our service approach,” he says. “The interest-only items appeal to the current pursuits of strong cash returns, but the low leverage underscores institutional discipline and commitment to performance on the part of the borrower and lender. CMBS was born out of distress and made headlines in an irrational market in 2007, but today’s version 2.0 offers stronger self-discipline and a stable alternative to other more traditional lending structures. CMBS in 2019 breaks with its difficult past.
Because of the benefits, Newmark Realty Capital is an advocate for CMBS debt even today. “Newmark Realty Capital is a longtime life insurance and CMBS debt manager with a mortgage portfolio of nearly $ 13 billion. So my team is familiar with a variety of capital structures, ”says Ritchie. “We understand the challenges and remedies of CMBS. Our people were pioneers in the CMBS universe and our involvement in the CMBS space now spans 25 years, starting with our work with one of our corresponding life insurance companies creating the first CMBS program on book in the 1990s and arranging for funding for one of the first single-asset, single-borrower private loans in 1995, where a funding source provided all debt tranches.