Originally posted by @Joel Owens:
Haven't used CMBS with my clients in years. There are too many private investors, insurance companies, credit unions, local, regional, national banks in the space now with great terms.
Used to 5 to 6 years ago regular lenders were only doing 3 to 5 year loans and rates were higher than CMBS. So CMBS offering 10 year and 30 year amortization was appealing even on smaller 3 to 5 million dollar loans with high CMBS loan costs.
Now banks are offering 10 year fixed with 30 year amortization in the 4's. CMBS has lost most of it's appeal anymore. Where CMBS shines is on much larger deals where banks do not want a huge loan on one property. I have seen banks pool together to offer different ranches of debt on a larger loan to do a deal.
Most of my deals CMBS is my last resort these days. Just better terms and cheaper debt out there that can close faster and with less red tape and legal costs.
Good Points Joel. As you mentioned yourself, what we are seeing now with the amount of capital flowing from life co's, debt funds is a very recent phenomenon. And in your experience you very well know that this is not normal and things are going to change. In my view, CMBS is not the end all and be all and is not a fit for everybody. At its peak, it financed 50% of CRE and now it is finances 15-25% of CRE and it always will have around a quarter or so of market share because it fills a need very well. CMBS was created in the early 90's because CMBS can fill a need that balance sheet lenders just cannot. Our bank has a balance sheet product but even in primary markets we cannot put a 10 year fixed rate non recourse loan on our balance sheet. Our balance sheet terms are typically 3-5 year floating rates and with CMBS we can offer consumers a 10 years fixed rate non recourse product and consumers benefit from it as they get an additional financing source. When consumers get quotes from a cmbs lender, life co, credit union and a bank, the consumer wins as you get to compare different options and the competition gets you better terms.
Additionally, in your niche of NNN retail, I'm sure you would have transacted in extremely small or tertiary markets or dealt with sub $5 or $3MM loans. While a regional credit union or small bank will lend money on such a deal, you are not getting Prudential or Met Life to lend you 10+years fixed rate loans on their balance sheet when its a small loan in a tertiary market. You might have to reach out to a small life co. With CMBS, one of our main advantages is the ability to offer long term fixed rate loans in smaller markets because the way CMBS is structured, we are able to efficiently disperse risk that comes with smaller markets. Our most recent CMBS deals have been done in South Lake, Texas which has a population of around 30K and Traveler's Rest, SC which has a population of around 5K. So, CMBS is not a fit for everybody but what I typically tell borrowers is that instead of going with the first quote from a regional credit union, they should look at all their financing options- look at life cos, bank, credit union, conduit, and then make a decision. CMBS may not be the cheapest every time, but the combination of higher leverage, competitive pricing along with a 10 year fixed rate non recourse product and generous I/O period is compelling enough that can make a CMBS quote competitive for a lot of deals. And lastly, putting NNN retail aside, hospitality loves CMBS as 30-50% of our recent pools have been hospitality loans and most of those were small loans in secondary/tertiary markets.
