The Current State of the CMBS Market

At PSRS, we focus primarily on providing Life Company financing through our correspondent relationships. Life companies provide stellar non-recourse financing, with rate locks at application,terms from Floating Rate to 40 Year Fixed, with minimal to NO reserve structure and loans from $1 million and up.

Sometimes, our clients require financing that may be better suited for lenders outside of life companies. When this situation arises we will often turn to the Commercial Mortgage Backed Securities (CMBS) market to see what is available for our clients. We negotiate the terms, hopefully minimize the amount of reserve accounts and structure, work to prevent any form of re-trades, facilitate the process, close the loan and often times service the debt in-house.

We sat down with Robert Fanto, Managing Director at Rialto Mortgage Finance (CMBS Lender), to discuss what is going on in the world of Commercial Mortgage Backed Securities:

How has the first half of the year gone for Rialto and the CMBS market as a whole?

Rialto is now the largest, non-bank, contributor to securitized loans. This year has been consistently busy, and we have continued to ramp up production, in an effort to meet the demand of maturing CMBS debt. At the start of the year, with risk retention and volatility, we have been able to keep spreads relatively tight, which has helped to drive business.

With concerns over e-commerce, shrinking big box retailers and retail continuing to business as they have historically, what have you done to adapt?

We have the ability to consider tougher deals. While demand for lenders in the marketplace has stayed healthy typically for only grocery-anchored retail centers, we don’t necessarily require the center to contain a grocer. We evaluate the strength of the request on market metrics.

How do you see the rest of the year panning out?

Acquisitions are the wild card, if acquisitions pick up, we are going to be extremely busy. The 10-year T has gone up by about 25 basis points over the last few weeks, there may be macro-economic impacts through reform and healthcare, while spreads internally have remained tight, we would urge borrowers to get there requests in over the next 3-4 months to cut out a big jump in treasuries.

Under what circumstances do you see CMBS being the best alternative to borrower’s financing needs?

While some deals will call for structure, CMBS can provide for max leverage, non-recourse on not necessarily trophy assets. Often times on lower leverage request (sub 65%) we can provide 10 years of interest only financing. We have been doing a lot of these and expect to do more, as rates go up.