In commercial real estate, financing is always an extremely important component of the game. Financing makes properties easier to buy, easier to sell, and the availability of good, solid financing definitely does its own part in helping to support commercial real estate property values.
With this in mind, in a report issued in November of this year, Deutsche Bank declared that it expects the issuance of Commercial Mortgage-Backed Securities (CMBS) to increase by a full 50% in 2013, totaling to approximately $60 billion in new loans that are expected to be issued within this arena.
For the commercial real estate industry, this is great news!
CMBS represent approximately 23% of all of the loans currently in place on commercial real estate within the United States. An increase of this amount in the issuance of these new securities would then represent the greatest total annual amount of CMBS-type loans that will be issued since the financial meltdown of 2008, which is a very good sign for the direction that commercial real estate is now heading in.
When lenders begin making financing more easily available to borrowers, more buyers will come into the market. As an example of this, when a property is available for sale for $1,000,000.00, but no financing is available to purchase it, the buyer then needs to come up with all cash out of their own pocket. This in itself will reduce the number of potential buyers for the property, as fewer people will be willing to now purchase the property for all cash.
But when available leverage begins to increase with more financing becoming available, and buyers are now able to purchase the property with let’s say 25% down, instead of having to come up with the entire $1,000,000.00 purchase price, more buyers will then become interested in buying the property. This then leads to the seller receiving multiple, competitive offers from more buyers, helping the seller to then obtain a higher price for their property. While at the same time, buyers end up purchasing and owning more properties that they would not have been able to purchase without the availability of this new financing.
In short, this greater availability of good financing is helpful to both buyers and sellers, and it helps to restore both liquidity and an ease in doing transactions within the marketplace again.
In their November report, Deutsche Bank commented on CMBS 3.0, the new program now being utilized to deliver CMBS to the commercial real estate community, by stating the following:
"In our view, it is nearly impossible to over-estimate just how important CMBS 3.0 is to the health of the commercial real estate market."
In addition, there is more good news for the entire CMBS market. The vast majority of legacy CMBS loans maturing in 2013 should now be able to be refinanced. Deutsche Bank estimates that $34 billion of these loans will be refinanced, that approximately $5 billion of them will be extended, and that only $1 billion of these loans will have to be liquidated. This is a substantial improvement over the current year where only about $1 billion worth of these loans were refinanced, $500 million worth of them were extended, and approximately $4 billion in value were liquidated.
CMBS-type loans have grown to become an important component within the overall availability of financing in commercial real estate. With the way that good financing has been tougher to obtain for commercial properties within recent years, it’s exciting to see that this segment of the market is now poised to expand significantly in 2013.
Investment Real Estate , Office Space