Given the state of the US economy during the financial crisis just a few years ago, it would’ve been hard for anyone to imagine the market being as vigorous as it is today. Following 2010, a year that capped off a three year span in which total CMBS issuances were less than $27 billion, the market has reawakened. CMBS lending levels have jumped from $30.27 in 2011 up to $83.20 billion in 2013. Money is once again flowing briskly into commercial mortgages. According to sources, the anticipated CMBS issuance for 2014 is expected to be just under $100 billion, a 15.26% increase over 2013.
With $1 trillion + in commercial real estate debt maturities coming due in the next three years, it is anticipated that the volume of loan financing will substantially increase over 2014 levels. CMBS shops in particular are gearing themselves up to be in a position to ensure their proficiency during that time. As commercial real estate continues to be the primary investment vehicle with the greatest return, the industry is seeing underwriting practices become more aggressive, albeit, not to the standards prior to the market crash. Before the downturn, loans were typically underwritten to 80% LTV, with up to 10 years of interest only payments and property values based on proforma net operating income. Fast-forward to 2014, CMBS lenders are funding loans up to 75% LTV using a property’s actual trailing 12 month income and expenses. We are seeing more and more interest only structures coming back into play. In addition, CMBS lenders are now really focusing on debt yield (NOI/Annual Debt Service) to determine loan proceeds versus a loan-to-value calculation based on cap rates. In 2010, debt yield requirements were in the 11%-15% range; debt yields today are as low as 8% for multifamily and grocery anchored retail properties.
What this all means for borrowers looking to maximize proceeds, is that now is the time to take advantage of the market. With rates at historically low levels and CMBS shops competing hard over business, it is the perfect time to lock in your long term fixed rate mortgage.
By Brett Wymer, Account Executive, Largo Real Estate Advisors, Inc.; bwymer@largocapital.com
The Largo Group of Companies is a commercial mortgage banking firm that structures, closes and services commercial mortgages for acquisitions, refinances and redevelopment projects. Largo arranges innovative commercial real estate financing structures for borrowers throughout the United States and Canada. We manage the loan process from loan application through closing and service the loan throughout its term.
Largo has 17 correspondent relationships and offers additional lending sources, providing property owners and developers long-term, non-recourse commercial real estate financing at a competitive fixed rate.
