Experts: Future for CMBS Markets Still Mixed

Even as economic uncertainty and fears of a double-dip recession continue to rile the markets, some say that commercial mortgage-backed securities (CMBS), recently on a downdraft, could either slowly recover over 2011 or see a fallback. According to experts, ongoing concerns about debt crises overseas and at home could dent a rebound for the CMBS markets.

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A ""story"":http://retailtrafficmag.com/finance/analysis/cmbs_tries_bounce_back_08172011/ published by _Retail Traffic_ magazine found several experts nodding and shaking heads over whether CMBS issuance, currently on a $20.8-billion high in 2011, unseen since 2007, could surge again in equity and securitization markets.

The publication quotes Gary Mozer, principal of Los Angeles-based ""George Smith Partners, Inc."":http://www.gspartners.com/, as highlighting the financing demand somewhat optimistically.

""There is a lot of demand for debt,"" _Retail_ quotes Gary as saying. ""Transactional volume is increasing. We're just at a moment where people don't know how to price it. As competition picks up and as we see markets price out, we will have a lot better indication of where things are going.""

Higher hopes for an uptick in transactional volume come on the heels of widening spreads.

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According to ""_Bloomberg News_"":http://www.bloomberg.com/news/2011-08-10/mortgage-bond-selloff-threatens-commercial-real-estate-rebound.html, a hoped-for rebound saw diminishing returns over August as euro zone market worries and debt scares encouraged sellers to push back on CMBS securities. The news service quoted a ""Barclays Capital"":http://www.barcap.com/ index that found CMBS yields expanded by some 298 basis points, approximately 2.98 percentage points more than Treasury yields. A no-go for the hotly anticipated $1.5-billion bond sale by ""Citigroup Inc."":http://www.citigroup.com/citi/homepage/ and ""Goldman Sachs Group Inc."":http://www2.goldmansachs.com/ only further depressed the $600 billion market.

Adding to the gray skies for a CMBS rebound, the ""Mortgage Bankers Association"":http://mbaa.org/default.htm sources a Trepp LLC report that found AAA-rated spreads squeezing to the tune of 200 basis points over April, even as AAA-rated 10-year spreads for CMBS constricted by nearly 1,000 basis points.

Speaking to _MReport_ for a past story, Manus Clancy, managing director with Trepp, ascribed the behavior in CMBS markets to the double-dip in home prices registered by Standard & Poor's in May. He said that wider spreads would likely crimp bank ledgers and prevent credit from reaching homebuyers, creditworthy or not.

""It's starting to become more difficult for borrowers to get money from the capital markets,"" he said.

Dan Fasulo, managing director with ""Real Capital Analytics"":http://www.rcanalytics.com/, tells _MReport_ that an economic slowdown coming to fruition could impact the market ""where CMBS have the most market share,"" with players in secondary markets likely to feel the burn.

Whereas larger urban office buildings, such as Manhattan-based commercial real estate, see 10 to 15 bidders per property, most other areas fail to see that kind of activity.

The bottom line for Fasulo?

""Turbulence in the capital markets has the ability to slightly raise borrowing costs,"" he says, referencing mortgage rates. Fasulo cites a $1.4-billion CMBS deal recently negotiated by ""Deutsche Bank"":http://www.db.com/index_e.htm and ""UBS AG"":http://www.ubs.com/, highlighting the ""higher yields and borrowing costs"" paired with the massive package.