When CMBS Still Works for Retail Deals

CMBS debt is still playing second fiddle to life companies on retail deals, but in specific deals CMBS just works better. The unnamed owner of two neighborhood retail centers has secured two loans totaling $31 million to refinance the properties, which are located in Aliso Viejo and Westlake Village. The borrower secured the funds through a CMBS company because they had specific issues that made them incompatible with life insurance companies.

“We originally sought to do these deals with a life company because they were low leverage, but there were two issues for the life companies,” Sharon Kline, EVP at CBRE, tells GlobeSt.com. “First, the properties were shadow-anchored centers, so there was no security. The other issue was that the borrower wanted 10 years interest only, because it was low leverage. I talked to several life companies, and that wasn’t going to work for them.” Kline secured the finds on behalf of the borrower along with her colleague, Marina Massari of CBRE.

When Kline did take the assets to the CMBS market, there was a lot of interest. “When we went to the CMBS market, I only went to a handful of companies, and those were not issues for CMBS,” she says. “CCRE flew out to meet with me and the borrowers, and that sealed the deal. They also had the best spreads and low interest rates.”

While CMBS was the right fit for the deal, the borrower had a previous bad experience with a CMBS lender and was hesitant to secure funding through another CMBS platform. “They weren’t uncomfortable, but they had a bad experience with a CMBS lender,” says Kline. “But, the rent was so good, and they just bit the bullet. We felt that rates are as good as they are going to get, and that put this to bed for the next 10 years.”

However, if possible, retail owners are going the life company route whenever possible. “If these deals were grocery or drug anchored, it definitely would have been a life company deal—but it could have been a CMBS deal either way. There are benefits to CMBS, particularly the higher leverage,” Kline says. “If you need high leverage, you have to go CMBS. It really depends on what you need in your financing.”

Of course, because retail has become a higher risk, CMBS has done a lot of retail deals. “CMBS does a lot of retail,” says Kline. “They are definitely willing to do that type of property, but I don’t do a lot of CMBS loans. The preference is still to go the life company route.”