The successful CMBS offering by Goldman Sachs and Citigroup (see our 3.23.11 News Article) that priced on March 23rd marks the fifth multi-borrower deal completed in 2011. Combined issuance in the five deals totaled nearly $8 billion. With over 20 CMBS conduit shops having jumped into the resurgent CMBS conduit loan origination market, the competition for quality loans is fierce. With market goals in excess of $50 billion on a combined basis from figures provided by the conduit shops, there may not be enough business to go around. As a result, the shops are getting creative on originations without sacrificing underwriting standards, at least for now.
“We are getting quotes and signing up borrowers for CMBS conduit loans on a variety of projects that would not have worked as little as three months ago,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “It is starting to feel like old times.” Examples of recent quotes include three limited service hotels, one of which is located in a secondary market. All of these loans are $5-$10 million. “Few loans below $10 million were being quoted at the beginning of the year. Now these $5 million-and-up loans are needed to fill out the CMBS pools,” said Sneden.
Recent approvals also include a small CVS drugstore loan of $2.5 million. “Credit-tenant drug stores are in high demand; any size Walgreen’s or CVS can obtain a CMBS conduit loan as long as the lease is not maturing soon,” notes Sneden. Other examples of the appetite for qualified CMBS conduit candidates include a recent application for an $8-million self-storage portfolio in a secondary market and an underlying co-operative apartment loan in New York City.
“In general, it looks like the asset classes found in CMBS located in primary and secondary markets prior to the 2007 crash can obtain a CMBS conduit loan as long as operating performance has been stable, near-term rollover risk is low and the borrower requests reasonable leverage,” observes Sneden.