Where CMBS Fits Into Retail Lending

MIAMI—There's been plenty of talk in recent years about the billions in CMBS-backed debt coming due. So, how will this impact retail property owners on the financing front? Should retail property owners work harder to secure credit tenant lease financing?

GlobeSt.com caught up with Jason Shapiro, managing director at Aztec Group, to get histhoughts on these questions in part two of this exclusive interview series. Be sure to read part one: 2015 Retail Financing Forecast. And stay tuned for the final installment Friday morning, in which Shapiro, a 15-year commercial real estate investment banking professional, will chime in on what submarkets are boasting the highest rental rates in South Florida and other topics.

GlobeSt.com: What options do retail property owners' face, as billions in CMBS-backed debt comes due in the years ahead?

Shapiro: The overall performance of the retail market over the next few years will dictate the lending and refinancing options available to borrowers at that time. With that said, loans that don't have enough cash flow to refinance the maturing debt will depend on other forms of capital, like either mezzanine loans or preferred equity to fill this financing gap, both of which have higher rates of interest than a traditional first mortgage.

These more opportunistic lenders will generally close loans faster than a traditional lender because their requirements are less stringent than traditional senior lenders, but will charge more interest. The difference can be significant, with banks currently charging interest rates in the 3% range. Hard-money and opportunistic lenders will charge in the 10% to 12% range today.

GlobeSt.com: What are some of the benefits of securing credit tenant lease financing and what factors are these terms based on?

Shapiro: Credit tenant lease, or CTL, financing, will allow the borrower to secure the best financing terms available in the lending market because it's largely dependent on a tenant's public credit rating. In certain cases, the retail property's location will matter less because the lenders in this space are more focused on the tenant's credit strength.

Large, stable companies in the retail space such as Walmart, The Home Depot and Lowe's are among those currently considered top investment grade tenants. We recently secured favorable financing terms for the redevelopment of the former Hollywood Fashion Mall in Hollywood, FL. because a Walmart Supercenter will anchor it.