Forum Spotlight: Issuers Forum Update

CRE Finance World, Summer 2012

Forum Spotlight: Issuers Forum Update Rene Theriault Vice President Goldman, Sachs & Co. 2 multi-borrower transactions ($5.03 bn) and no single- 70 to 75% of appraised value is fairly standard for conduit loansCompetition for commercial real estate loans remains very high, bothamong CMBS lenders and between CMBS lenders and balancesheet lenders, including life insurance companies, commercialbank balance sheets and mortgage REITs. Leverage betweenbn) had priced, compared with three012 started out quietly compared with the burst of issuancethat rang in 2011. By the end of February, only one multi-borrower transaction ($1.15 bn) and one single-borrowertransaction ($0.63 borrower transactions for the first two months of 2011. Of course, today. Lenders also compete on loan structure, including reserves the first part of 2011 saw issuance backed by loans that had been and amortization. B-piece buyers have remained vigilant, however, accumulated over more than six months by some dealers who with continued focus on leverage and loan structure. were waiting to make their splash in the New Year. By contrast, the market pull-back in the second half of 2011 sidelined some issuers Structurally, issuers have continued to innovate and refine CMBS and many borrowers, resulting in anemic loan production. offerings. Notably, the first quarter has seen the dividing line between public and private bonds move down the capital stack The first CMBS deal of 2012 brought in tighter bond pricing, with beyond the super-senior AAAs to include public subordinate AAAs 5- /10-year super senior AAA’s pricing at +110 bps /+120 bps, (A-S bonds) and in some cases AA and A-rated bonds (typically compared to +130 bps /+130 bps at the very end of 2011 and the B’s and C’s). In addition, issuers have continued to work to +225 bps /+200 bps in August 2011. BBB- spreads improved find the right balance between special servicer compensation and significantly from the end of 2011 to the beginning of 2012. mitigating costs to the trust, with several new deals limiting work- With improved pricing and a general improvement in economic out or liquidation fees on loans within a certain period after balloon, sentiment, loan production rebounded as borrowers returned to the limiting or restricting compensation to special servicer affiliates and market and issuers became more active. As a result, issuance has increasing required disclosure of special servicing compensation. rebounded significantly through the first week of May (the time of this writing), with the pricing of an incremental five multi-borrower As we have seen over the past few years, and certainly in 2011, the transactions ($5.43 bn), four single-borrower transactions ($2.26 economy in general and the CMBS market in particular have not bn) and one liquidating-trust deal ($0.13 bn). That brings year-to- recovered in a steady straight line. Sometimes the recovery races date activity through the first week of May 2012 to approximately forward, sometimes it falls back, and sometimes it idles in place, as $9.60 billion, which compares to $8.88 billion for the same period we anticipate its next move. We are fortunate that loan production in 2011. and the forward CMBS issuance pipeline have improved dramatically from the end of 2011, and if issuance continues on its recent pace, Looking forward, the CMBS pipeline continues to grow as loan 2012 will outstrip 2011 issuance. pricing has remained relatively stable and risk appetite has grown stronger. The better than expected resolution of the MAX CDO in The Issuer’s Forum is looking forward to an active Summer and Maiden Lane III was a strong positive in the second quarter, lending Fall, as we work to schedule meetings with other CREFC forums additional secondary market stability. The rebound in the equity to address existing and emerging challenges that the industry is markets from the second half of 2011 is also beginning to bear facing. Please do not hesitate to reach out to me if there are issues fruit in renewed acquisition activity. Additionally, the emergence of that you believe the Issuer’s Forum should address or if you would several new B-piece buyer entrants should further bolster market like to participate in any of the meetings. Finally, I would like to capacity. The combination of increasing CMBS capacity and new thank Jon Strain, our outgoing Chair, for all of his work on behalf equity capital are positives in right-sizing and refinancing maturing of the Issuer’s Forum and for having stepped-up to effectively commercial real estate loans. serve a double term. Jon has been great to work with and we have all benefitted from his diligence and hard work. A publication of Summer issue 2012 sponsored by CRE Finance World Summer 2012 69


CRE Finance World, Summer 2012
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