CMBS financing may havefallen out of popularity this cycle, but it remains a greatmiddle-ground debt solution for borrowers. MarkRitchie of Newmark Realty Capitaldescribes CMBS as the goldilocks solutions, with balanced ratesthat can be appealing given the right terms.

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“Here's the Goldilocks metaphor. Borrowers need to explore theiralternatives. There is a middle ground where CMBS provides the'just right' debt capital solution. Today CMBS leverage and ratesaren't too high, nor are they ridiculously low,” Ritchie, aprincipal at NRC, tells GlobeSt.com. “The right set of terms can beextremely appealing. Unfortunately for many borrowers a CMBSlending solution has become the loan of last choice, maybe forvalid reasons due to a checkered past, however in it's contemporarystructure CMBS offers a compelling option for the demands oftoday's equity.”

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Specifically, CMBS is a good fit for urban and secondary andtertiary markets. These are often areas where other capital sourcesare less aggressive in pricing. “Even the top urban markets on theWest and East coasts—think San Francisco, Los Angeles, New YorkCity—can benefit from the ability of CMBS to provide an attractivefunding solution,” says Ritchie. “With a 65% loan-to-value,10-years interest only structure available, the right CMBSexecution creates strong cash flow over the life cycle of assetownership, which we have seen as a driving consideration in today'smarket environment.”

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CMBS financing has fallen out of popularity largely due tocustomer service post closing. However, CMBS has a history of bestpractices, according to Ritchie. “The institutional disciplineguiding CMBS underwriting today built on a legacy of bestpractices, including fine-tuning our approach to servicing,” hesays. “The interest only elements appeal to current pursuits ofstrong cash-on-cash returns, however low leverage underscores theinstitutional discipline and commitment to performance from bothborrower and lender. CMBS was born from distress and createdheadlines for an irrational market in 2007, however today's version2.0 offers a stronger self discipline and stable alternative toother more traditional loan structures. CMBS in 2019 is breakingaway from its difficult past.”

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Because of the benefits, Newmark Realty Capital is an advocatefor CMBS debt even today. “Newmark Realty Capital is a long timeservicer of both Life Company and CMBS debt with a mortgageportfolio of nearly $13 billion, so my team is well versed in avariety of capital structures,” says Ritchie. “We understand thechallenges of and remedies for CMBS. Our people were pioneers inthe CMBS universe and our involvement in the CMBS space now spans25 years, beginning with our work with one of our correspondentlife companies creating the first on-book CMBS program in the1990's and arranging financing for one of the first private SingleAsset Single Borrower loans in 1995, where one funding sourceprovided all debt tranches.”

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.