At first glance a recent report by CoStar Group raises the prospect that commercial lending is experiencing an unsettling “been there, done that” phase.
CoStar reports that Bank of America and Morgan Stanley are launching a
a collaterized mortgage backed security (CMBS) that is reminiscent of the bubble days of 2007 in commercial real estate.
CoStar says that the Kroll Bond Rating Agency estimates the banks’ MSBAM 2013-C9 offering will have a 98.8% loan to value ratio. In fact, the Kroll analysis says that nearly 43% (or 29) of the pooled loans in the portfolio have LTVs of more than 100%.
Among other points in the CoStar report:
· Commecial lending was up 40% in 2012 concurrent with relaxed underwriting standards.
· The 2013 lending pace through Q1 is running ahead of the full first half of the previous year.
But CoStar notes that some industry professionals, while acknowledging that low interest rates make leverage attractive, also emphasize that cap rates have remained high--thereby resulting in sustainable investments keyed more to income than betting on future appreciation.
CoStar quotes, Patrick Gates, a principal of Cincinnati-based Matrix Holdings, who observes that, “The low cost of debt helps sweeten the deal, but the ‘story’ related to the asset is far more important. In regards to debt, if (or when) rates increase in the coming years, those increases will be integrated into the deal.”
