CMBS back in play

After taking a bath in 2008 and being sucked down the drain, CMBS once again is dipping its toe in the water.

The number of CMBS bond pool issuances since 2008 can be counted on one hand. However, a proposed 6th mortgage bond pool will be forthcoming from Goldman and Citi, so you’ll have to take your other hand out of your pocket to continue the count.  The latest issuance is a ~$800M pool with the following characteristics:

- 54% LTV

- 1.9 DSC

Those underwriting characteristics are not sufficient to provide relief to the Commercial Real Estate (CRE) market which is starved for refi sources.

Nonetheless, to date the post-crash CMBS issuances, all of which are atypical of the general CRE market, are reestablishing the viability of CMBS financing.  Some day (and that day remains beyond the horizon) CMBS may be a viable source for garden-variety CRE financing.   Recently I met with Morgan Stanley’s head of CMBS.  He gave me no reasons to anticipate the imminent return of CMBS as a major source of CRE financing in the near term.

The mortgage pool being issued by Goldman and Citi will be rated by Moody’s so the AAA top tranche will be bullet-proof…well…maybe not bullet-proof given Moody’s track record.  It is worth noting that S&P did not get the order to rate the bond pool because their criteria are more stringent.  Are we headed back to the future?

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