The commercial mortgage backed securities (CMBS) market has yet to return to its pre-recession heyday. Market volatility, contraction, and regulation have caused the 10% gains of the 1990s to fall to 2% or less. As the new risk-retention rules will be implemented on December 24, 2016, the market continues to be unstable. The rules require the issuer to have some “skin in the game” by holding 5% of new deals or designating an interested B-piece buyer to assume that risk.
Until the market stabilizes after this regulatory change, a risk premium of approximately 15 bps will be added to market spreads. Although only accounting for an approximate 7% of commercial real estate financing executions, CMBS continues to fill a niche for non-recourse financing at 65-75% LTV.
© 2017 Greysteel. All Rights Reserved.