Paul Angle at Column Financial recently polled mortgage bankers across the country in an effort to gauge our perception of when CMBS lenders will return. The results and his conclusions are very insightful. With his permission, here is what he found.

Dear Valued Clients,

First of all I wanted to Thank all of you that responded to my question of “How much do spreads need to tighten in order to get borrower interest in CMBS”. The number of you that responded was quite impressive so I was able to compile meaningful statistics and also heard many recurring themes.

The average spread that was estimated for Borrowers to be interested in taking a CMBS deal was 276 with many 250-300 responses as well as 275 responses.

Many of you responded with giving me an interest rate instead and that average interest rate was 6.59% with many indicating that there needed to be a 6 handle or under 7%.

My conclusion is that we will need to be under 300 and under 7% and we will then see flow of deals that had not been easily placed with the Banks and Life Companies.

Here are some of the other findings:

CMBS lenders must restore credibility in the marketplace and until then CMBS lenders will not be seriously considered when the borrower has other options.

Due to the lack of credibility CMBS lenders will have to compete on price, proceeds, structure and quick closings.

Many indicated that CMBS lenders would need to lend on the deals that Life Companies and Banks were passing on and that CMBS lenders could obtain a higher spread for doing so. What we are talking about are deals that we would have easily done in the past but are being snubbed today. What was referred to 5-10 years ago as a “standard conduit loan”.

Banks are very competitive with 3,5 &7 year deals but 10 year Non recourse loans are attractive to Borrowers and would be a selling point particularly with 2-3 years IO.

“Certainty of Execution” will be a big factor with Mortgage Bankers so locking rate without a MAC clause will be key. CMBS lenders will have to deliver on Applications so pre-screening will be a must and a shortened due diligence period will be important.

As CMBS spreads tighten, so will Banks, Life Co’s and GSA’s so it will be difficult to compete for the loans that those lenders desire.

As other lenders get their fill of commercial deals as a result of allocations filling or regulators putting the breaks on, CMBS as an alternative will be more attractive.

Once again, Thank you for your responses and your comments.

Paul

A year ago …

everyone was lending money.
every lender wanted every deal.
lender’s allocations were in the billions.
all property types were golden.
a 200 basis point spread was unbelievably high.

Today …

few lenders are lending money.
every lender is extremely picky.
lender’s allocations are significantly lower than last year.
the four food groups are lendable.
a 200 basis point spread is unbelievably low.

• A private equity firm is investing a much needed $5 billion into Washington Mutual, the country’s largest savings and loan. This will ease some cash constraints WaMu has been feeling.
• The WaMu deal isn’t all rosy. 3,000 employees are losing/have lost their jobs as the company sought to cut costs. Also axed recently was the dividend. On top of that, shareholders will have to endure a diluting of their shares as the private equity firm is assuming a significant ownership portion of the company.
• The market has responded positively this morning to the news; all major market indexes are up. Of course, WaMu stock is up on the news, 30% at the market’s close.
• For those that don’t know, WaMu also lends on commercial real estate.