cmbs market overview

CMBS Market Overviewby Ivan Kaufman

ARBOR.COM • 1.800.ARBOR.10

Ivan Kaufman’s Real Estate Market Overview

• CMBS volume has dried up and there are significant challenges in trying to originate CMBS loans effectively.

• Not only does the market need to match the level of CMBS issuances over the last few years, but more needs to be done to support the growing number of maturing CMBS loans.

• The number of 2005-2007 loans maturing has almost doubled.

Key Takeaways – CMBS Issuance


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

US CMBS Issuance

Source: Arbor, MorningStar, CREFC

CMBS IssuanceIn Billions of US $


• CMBS spreads have widened out, making it a challenge for deals to get done.

• Not only have spreads widened, but there are less proceeds and, in general, fewer types of assets obtaining CMBS financing.

• This is in part because of the risk retention regulations that will go into effect later this year.

Key Takeaways – CMBS Spreads


Source: Arbor, Commercial Mortgage Alert, Trepp

CMBS SpreadsNew-Issue Spread over Swaps

Feb-12

Mar-12Apr-1

2Jun-12

Jul-12

Aug-12

Oct-12

Nov-12Jan-13

Feb-13

Mar-13

May-13Jun-13

Aug-13

Sep-13

Oct-13

Dec-13Jan-14

Feb-14

Apr-14

May-14Jul-1

4

Aug-14

Sep-14

Nov-14

Dec-14Jan-15

Mar-15Apr-1

5Jun-15

Jul-15

Aug-15Oct-

15

Nov-15Jan-16

Feb-16

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

10-Year AAA Spread


• The CMBS market historically has created issues within the marketplace. Risk retention rules are created to avoid such complications.

• The new distributed risk model will force whomever buys a risk piece to keep that risk piece.

• The buyer has to maintain 5% of the risk and retain it.

• Therefore, every loan has to be fully underwritten, and lenders will be careful about what is being originated. This is a better model.

Key Takeaways – CMS Risk Retention


• The minimum risk retention requirement is no less than 5 percent for any asset that a sponsor, through the issuance of ABS interests, transfers, sells or conveys to a third party, unless an exemption applies.

• The Agencies did not increase the minimum requirement of 5 percent, but they noted that parties to a securitization transaction are free to agree that more risk should be retained.

• Although the rules do not prohibit more than one sponsor from participating in a securitization, they do not allow multiple sponsors to divide the required risk retention.

• Furthermore, sponsors are generally prohibited from transferring or hedging the interests they retain for two years from the date of the closing for the securitization, although the time limit for residential mortgage-backed securities (RMBS) is five years.

• Each B-piece buyer must: • Perform an independent review of the credit risk of each

securitized asset• Pay for the B pieces in cash at closing without financing• Must not be affiliated with any party to the securitization

Dec. 24, 2016 Rules

compliance deadline for

all multifamily loans

securitized after this date