LOS ANGELES—Although CMBS was predicted to be the major financing theme of the year, commercial banks are staying very competitive, according to Gary M. Tenzer, principal and managing director at George Smith Partners. Last year, CMBS racked about $83 billion in volume, and anticipated doing $125 to $150 billion this year.
“My guess is that they are not going to make it,” Tenzer tells GlobeSt.com. “One of the big stories about CMBS this year is how much business they are losing to commercial banks. CMBS would have you think that it was going to be a CMBS year, and CMBS is doing great. They will probably do better than last year, but the commercial banks have really been doing a lot of on book stuff very aggressively.” Tenzer is itching to expand on this dichotomy when he leads the CMBS market panel at the upcoming RealShare Investment and Finance conference on June 25 at the California Club in Downtown Los Angeles.
Although CMBS was extremely popular pre-recession, Tenzer is finding a lot of borrowers now would prefer to work with a commercial bank, even if that means they have to pay a higher rate. “CMBS is securitized, and you wind up with a bunch of bondholders that are represented by a trustee and servicers. The servicers are like robots; they do what they are suppose to do, but if there are any variants, they are very hard to work with,” says Tenzer. “When people had trouble in the downturn, they remember that the CMBS loans were just impossible to restructure. I have had borrowers that have said they are willing to pay a little more in rate to avoid another CMBS deal. They may be a victim of their own success to some degree.”
Tenzer was not necessarily on the CMBS loan bandwagon at the beginning of the year. He had a couple of big bank deals that normally would have gone through Freddie or Fannie. “They were floaters, but that really showed me that the banks can compete when they want to. The banks wanted their business, and they got really aggressive,” he adds.
Experts expected CMBS to do well this year largely because of refinances. Several CMBS loans will reach maturity from 2014 through 2016, and many thought the maturities to boost CMBS to pre-recession levels, although that has yet to happen. I don’t know if CMBS will get back to pre-recession volumes this year. So, it is possible that CMBS will hit its goals in the coming two years. “Next year, the refinance bulge is really going to hit,” says Tenzer, adding that in many cases it makes sense to replace an existing loan with new debt, because rates are lower and you can borrow more money. However, even though values have rebounded to where they were, they may not be any higher than they were when the loans were originally done. It is 10 years later and we might just be back to where we were.”
You can hear more of Gary’s thoughts on the CMBS market, along with other finance experts, at the RealShare Investment and Finance conference on June 25.