More than $100 billion of commercial mortgage-backed securities (CMBS) loans are slated to mature this year, and heavily over-leveraged borrowers will be hard-pressed to get the refinancing dollars they need in the coming months, according to industry experts.
After the CMBS market nearly disappeared during the recession, there are fewer lenders in the pool and regulators have stepped-up monitoring of companies that originate those loans, said Stephen Holmes, executive director at Morgan Stanley who focuses on commercial lending, at a NAIOP Massachusetts event in Boston this morning.
Those factors should act to siphon off undesirable deals from the market, Holmes said. Even so, he said his group has already eclipsed last year’s $11 billion in CMBS originations, and expects $35 billion to $50 billion in originations this year.
However, an audience member at the event asked what would change now that Wall Street is recovering, and investors that played their hands close to their chests during the recession activate more capital.
"Will we screw it up again? Yes. It’s just a matter of time," Holmes said. "There will be lenders that go too far. But you have regulators that are more involved and not asleep at the switch. I’m a fan of the [Class B property] buyers because they inflict real discipline. If they don’t like a deal, they kick it out. There are a lot of things that will prevent us form being stupid too quickly.
"There will be moves to be much more aggressive," Holmes added. But he offered a warning to his peers: "Don’t be a lender who chases someone off a cliff for a deal. Now we want the trip long and extended rather than just getting to the biggest numbers."
While Morgan Stanley has re-entered the CMBS realm, People’s United Bank is hoping to do more traditional bank lending in the near future, said Thomas Healey, senior vice president and Eastern New England market manager for the bank.
People’s is currently in the middle of a deal to provide financing for the owner of a Class B building in Boston’s Financial District, where the bank already has mortgages in place. The bank is also looking at many possible loans along Rt. 128, which Healey called a very competitive market for lenders.
"We’ve gotten some exposure to better quality assets," Healey told Banker & Tradesman. "We are local and we are there, so hopefully we can be a bit more nimble."
Healey said People’s has always focused on cash flow while underwriting a deal. They put a lot of emphasis on the experience of the borrower, looking at how they have acted and made it through the economic downturn as an indicator of how they will act going forward.
