The CMBS market is beating the odds, rising again as a viable business for cash-flowing assets. In its new form, conservative underwriting and smaller deals are the new norm. The new CMBS market could speed economic recovery, but the market faces a host of challenges of its own.
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Increasingly, borrowers and lenders with loans in good standing have been reaching agreements on discounted prepayments. In theory, a discounted loan payoff should be straightforward — the borrower simply negotiates a discount with the lender in exchange for early repayment of the loan.
The commercial real estate market is in the early stage of a cycle that will be dominated by the restructuring of distressed debt. No one knows how long the cycle will last and how severe the distress will be, but there is no doubt that the market will not regain its balance until the vast majority of distressed debt — completed through scores of individual property recapitalizations — is resolved.
Like all property types, the multifamily sector suffered the effects of the past year’s recession. High unemployment rates pushed vacancy rates up, price declines and a tightened credit market put the brakes on new and existing construction projects, and building sales stagnated.
At the recent CB Richard Ellis Investors Conference in Arizona, The Real Estate Roundtable presented, among others, the following facts: The $6.7 trillion pre-crash U.S. commercial real estate investment market is now valued at $5.7 trillion.
The securitization market for U.S. commercial real estate loans all but collapsed in the wake of the financial crisis that rocked the global economy in 2008 and early 2009. Property values dropped dramatically as virtually all forms of financing dried up. Most property types have experienced more than 30 percent value declines as of year-end 2009 (according to The Moody’s/REAL All Property Type Aggregate Index and the NCREIF Property Index) with an overall peak-to-trough decline of 35 percent to 40 percent predicted.