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Commercial Real Estate Loans - Looming Liquidity Crunch for CMBS Loans

By Rick Longpre on Apr 05, 2016 at 09:12 PM in Santa Barabara Commercial Real Estate, Investing in Commercial Real Estate
Santa Barbara Commercial Real Estate Loans - Looming Liquidity for CMBS Loans

Do you have a commercial real estate loan in Santa Barbara coming due in 2016 or 2017?  If so, you should start your planning early, especially if you currently have a CMBS loan and are thinking you will be able to go back to the CMBS market.  If you haven’t heard, the CMBS loan market has been in turmoil recently, with widening spreads, dwindling lenders and less competitive terms.

Commercial CMBS Capital Market Not Viable Option

A recent article in National Real Estate Investor, by Shlomi Ronen (3-11-16) noted that CMBS funding year-to-date is about 46% of the same period in 2015.  The reasons cited include:

  1. Shrinking number of lenders, squeezing out the middle and leaving only, large, high volume originators and niche players with specialty markets and/or product types;
  2. Widening corporate bond spreads pushing CMBS rates higher;
  3. Pending regulatory changes requiring originators to maintain an equity stake is creating uncertainty and caution in the market.

Traditional Lenders May Reach Capacity in 2016

The good news is that other lenders, including banks, equity funds and insurance companies are eagerly filling in the gap left by CMBS.  The critical point made by Ronen, is that these traditional, alternative sources may reach their funding capacity mid-2016, creating a liquidity crunch for those seeking to refinance or acquire new financing later this year. 

This may have a significant impact on an owner’s strategic planning if there is a looming maturity later this year or into 2017.  It may also play a role in the valuation of assets requiring significant downtime to fill vacancies, remodel or reposition versus properties that can provide a stable, cash flow over the coming 2-3 years. 

Develop Strategic Plan Early and Explore Options

The solution is simple: Develop a strategic plan now and explore all options including the sale of the asset.  It has been a “seller’s market” for the past couple of years and a liquidity crisis could tip the scales in the other direction.  In either event, owners and investors would be wise to follow these developments in the capital markets.  For assistance in developing a plan or evaluating the value of your real estate asset(s), contact us for a no obligation review of your current financing and/or disposition plan.

http://nreionline.com/cmbs/get-ready-liquidity-crunch-late-2016

Rick Longpre
Broker, President
Latitude Inc. Commercial Real Estate
Santa Barbara, California