CWCapital anticipates increased competition within the US commercial mortgage-backed securities market as more bridge lenders enter the space.
“There’s so much money out there chasing [CMBS] deals and a plethora of debt opportunity,” James Shevlin, president and chief operating officer of the Washington, D.C.-based commercial real estate financial services company, tells Real Estate Capital USA. “People are taking advantage of low rates, and that’s why you’ve had all these bridge lenders step in.”
Still, Shevlin believes the historical performance and robust nature of the CMBS market will be a differentiator. The market, aided by government support, kept lending throughout previous periods of instability, including the period after the September 11 attacks and the 2008-10 global financial crisis.
The covid-19 crisis has been unlike any the markets have seen. In 2008, there was a liquidity and valuation crisis. “Covid had really created a liquidity crisis, at least that was the initial thought,” says Shevlin. “Then all this liquidity came out of the woodwork to help support all these deals.”
The structures of loans today are stronger than prior to the pandemic, Shevlin says, citing much lower LTVs as key differentiators.
“Loans in the prior crisis were really maxed out,” Shevlin says. “We’re really not seeing that today and I think that’s why our delinquencies are overall much lower than they were in 2008 to 2010.
“This is a good study of how these prices are so different and why things are holding up much better today. The losses we are seeing today are more asset-specific, whereas in the last crisis, the losses were just spread over everything, every market.”
One concern for the CMBS market, which typically offers fixed-rate loans, is the number of borrowers that have transitional assets and may opt for a floating-rate execution.
“There’s so much money out there to help to take down some of these properties that may need a little bit of fixing before you lock yourself in for 10 years,” Shevlin says. “A floating rate loan is the way to go.”