First Significant New CMBS Issuance: JPMorgan Chase's $716.3mil Conduit Securitizaton Points To Liquidity Thaw
The lack of liquidity, of course, is a huge drag on the recovery of the commercial real estate market. Buyers of foreclosed properties, or as white knights of deals in distress, need credit as part of the investment mix.
As I've noted before (prior posting), capital market credit (in the nature of CMBS or equivalent product) is an important, and missing element in what I call the "funding gap" (i.e., the difference between CRE financing needed to refinance maturing debt in excess of financing available from traditional funding sources [banks, life companies and Freddie\Fannie]).
This week I'll be attending the June Convention of the Commercial Real Estate Finance Council. The "hot" topic will be the "return" of multi-borrower CMBS 2.0 securitization (with a close look on the financial reform bills and the House-Senate conference committee).
For a good review of recent developments of the "return" of the CMBS loan market (sometimes referred to as CMBS 2.0), read the summary from Retail Traffic.
The good news last week is that the first large, multi-borrower CMBS was brought to the market. It will be the second CMBS issuance this year (but first public offering), following a private CMBS securitization by Royal Bank of Scotland in the amount of $309.7million, which also was a multi-borrower deal (but mainly retail properties located in New York).
In contrast to the RBS private securitization, the JPMCC 2010-C1 is larger in amount and broader in its reach. Here are some details:
- 36 fixed-rate commercial mortgage loans secured by 96 properties
- Twelve of the loans are secured by multiple properties
- Multi-borrower, with 13 loans (or 42.5% of the pool balance) made to a single borrower (Inland Western Retail Real Estate Trust) (so, not the "real" multi-borrower pool that we saw in CMBS 1.0 - but the market must like Inland Retail: recall the Inland Retail [single borrower] CMBS securitization last fall [briefly described by Retail Traffic)
- 76.4% of the offering were JPMorgan Chase Bank loans
- 21.6% of loans come from Ladder Capital Finance (hurrah: multi-lender, too!)
- 80.4% loan-to-value ratio
- Multi- product mix: 70.9% anchored retail, 14.1% office, 11.8% industrial, 1.8% self-storage and 1.4% manufactured housing
More details are in this presale report prepared by Fitch (pdf).
So, with these two new CMBS securitizations, what are the current projections of CMBS for 2010 to cover the funding gap, and to bring credit available for the purchase of foreclosed properties, or for use by "white knights" to buy distressed deals?
- Barclays predicts between $15-20 billion
- Trepp predicts $25-$30 billion
- My prediction (yes, I'm laughing, too): $10billion, tops
I discount the Barclays and Trepp predictions simply because:
- the start-up time at the loan production operations alone will take us into 4th quarter 2010 until we'll really see loan originaiton shops at full speed - with closing rates capable of hitting their predictions
- remember - the CMBS shops will be competing against life companies, who have not placed a significant amount of their 2010 allocations (one source reports that life companies have only placed @ $5B of their $30B allocations after the 2nd quarter of 2010)
- and the deck chairs will be realigned upon the passage of the financial reform bill - with new roles for rating agencies, new oversight regulations, etc.; all of which will take time to digest
Of course, while the 2010 CMBS securitizations will be a significant improvement over the $8.9B of CMBS issued in 2008 and the the $2.2B issued in 2009, the predicted amounts are way, way under the $207B issued in 2007 - at the height of the credit christmas.
But, it is a good start.
And the 2007 amount is NOT reality.
It you have any comments or questions, please post a comment below.
