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WHAT’S YOUR OUTLOOK ON THE FUTURE OF THE CMBS MARKET IN FLORIDA?

Last week’s national GlobeSt.com Quick Poll asked readers to place their bets on the CMBS market. A majority of respondents, 69%, say CMBS is sleeping, while 12% believe it is dying and 19% think it’s already dead. S. Kelly Anzinger, assistant VP with RBC Capital Advisors in Orlando, shares her thoughts on the CMBS market:

“The CMBS market should gradually return as a viable financing vehicle in 2009, although volume will most likely remain considerably less than 2005 and 2006 levels. This is in part due to the economic slowdown and industry shift to alternative capital sources, such as life companies, pension funds and banks. Pricing will likely remain above the 200 bps range, as risk premiums have adjusted upward across all sectors from levels seen during the frenzy prior to last summer.

“The good news is that investors, motivated by the Fed’s move to accept CMBS and other asset-backed securities as collateral for direct loans, and by the improving credit quality of CMBS collateral (due to more stringent underwriting), are beginning to buy CMBS again. As a result, investor spreads on AAA to BBB pieces are tightening, which means the breakpoint for conduit lenders is decreasing, and this will translate into lower spreads/interest rates quoted to CMBS borrowers.

“However, more equity and asset stability will be required to qualify for a CMBS loan in future. Florida’s tourism-driven economy means our state is heavily weighted with hotel properties, which are considered more risky than other commercial property types. The absence of “old school” CMBS—cheap, long-term, fixed rate debt at 75% to 80% leverage—may hit this sector hardest, especially limited-service and budget hotels, which are not popular among alternative capital sources.”

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