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The CMBS Market

05/23/2008


In the article titled “Year of the Bear,” the Commercial Property News has addressed the disappearance of the CMBS mortgage market towards the end of 2007. For those of you who work in industries outside of the real estate world, CMBS stands for “Commercial Mortgage Backed Securities” and refers to the values that Wall Street attempted to place on ever-increasing amounts of real estate. These values were intended for the investing public to gobble up as quasi-stock type investments.

For years I have been railing against the inflationary forces caused by the CMBS industry. The CMBS market has had a major role in causing the real estate bubble to expand over the past five years.

Well, “the chickens have come home to roost.” A large part of the reason for the excessive real estate bubble stemmed from the loose origination standards of the CMBS organizations. That has, thankfully, come to an end.

With stronger, stricter underwriting standards, sanity is returning to various segments of the real estate market place. Pricing for all types of real estate assets have come down significantly over the last eighteen months and will continue to do so for at least the remainder of 2008.

What is one to do, if he/she is a real estate investor:

· Pick your target carefully. There will be many opportunities to buy during the remaining months of 2008. Don’t overpay. Assets will almost certainly be cheaper in six months time.

· Start planning if you are a CMBS borrower with a loan due in 2008 or 2009. You must plan now for an eventual take-out of your loan. The CMBS market may not return in time for your loan expiration. -- Ed Klein

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