Multifamily Financing: CMBS 2.0

Welcome to multifamily financing in the 21st century.  It’s a brave new world!  CMBS 2.0 is here as 25 shops have recently set up for Commercial Mortgage Backed Securities (CMBS) lending.   The forecast is for $40-$60 Billion of CMBS loans this year. 

It is time to start thinking again about Life Insurance Companies and CMBS 2.0.   In 2007, CMBS loans exceeded $225 Billion Dollars.  This dipped to $3 Billion in 2009.  That is a huge amount of capital that left the lending market and was part of the multifamily financing challenge over the last few years. 

This is the second guest article I have written for Multifamily Insight, and again I offer my kudos to this blog.   The vast articles are interesting and insightful.  My first article was titled “Multifamily Financing: A Borrowers Guide” and it addressed the challenges and pitfalls of  obtaining a commercial loan in today’s market. 

I focused on the three main lending sources of multifamily loans; Freddie Mac, Fannie Mae and HUD.  These three sources are collectively doing 90% of all multifamily loans today.  Another theme was that borrower underwriting has become more challenging and diligent.  And as always, good record keeping is essential.

Banks were not lending, and Life Insurance Companies could pick and choose what loans they funded (and remember, many Life Companies have maturing loans every year that is part of their overall funding program).  If there is $50 Billion of CMBS loans funded in 2011, this will bring more capital into the market place, and hopefully ease some pressure. 

CMBS loans underwritten in 2007 will be very different from a CMBS loan underwritten today, and this is a good thing.  Gone are the days of the 10-year interest-only loans, underwriting proforma rents and a lender waiving reserves, escrows, etc (except in the case for low leverage loans).  The CMBS loan of 2011 (now referenced as CMBS 2.0) will be underwritten diligently, the way it was intended when CMBS was first introduced. 

Maximum Loan-to-value is currently 75%, while some CMBS shops are sticking to 70% LTV.  Now, I won’t be surprised if this eventually pushes back up to 80%, but I don’t see this happening in the near future.  I think everyone is waiting to see how many loans can get done by CMBS and how the paper sells. 

There is less negotiation in the loan document process, as CMBS shops need to paper the transaction appropriately to make sure it sells.  Borrowers will still have challenges talking to a loan servicer or getting a friendly voice on the phone should issues arise.  But the fact that 25 firms have set up shop is good news – I guess we’ll see if they all can survive, but this is still positive news for borrowers.

A more borrower friendly source of capital is Life Insurance Companies.  NorthMarq has relationships with over 50 Blue-Chip Life Insurance Companies.  Life Companies were the major source of capital in 2008 and 2009, but they still didn’t win many multifamily loans due to the competitiveness of Freddie Mac, Fannie Mae and HUD. 

Today, they are actively competing with Freddie and Fannie and are getting their share of multi-family loans.  Don’t get me wrong, CMBS lenders and Life Insurance Companies will still underwrite and scrutinize a loan, and they will still analyze borrower strength, the market, the competitive set and do everything that a smart lender should do.  But CMBS and Life Companies are opening up the lending landscape not only on multifamily loans, but other income producing properties. 

Finally, Freddie Mac, Fannie Mae and HUD are also still lending, so there are more options for loan opportunities.  All of this is good news for potential borrowers.  Yes, there are still problem loans.  Yes, lenders are still foreclosing on assets.  But for the right borrower, with the right property, with good stable history, there are loans to be had again in 2011.

 I welcome any questions or comments, or any questions about market conditions and  interest rates.  I can be reached at  David Garfinkel is a NorthMarq Capital employee and the views and opinions expressed are his alone and do not represent the official views of the company.

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Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel. We discuss best practices in multifamily management and methods related to how to buy apartment complexes. Our focus is sharing strategies and tactics that can be implemented and measured. For more information, visit:

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