CMBS issuance has declined significantly since the financial crisis and spreads have widened, making deals more challenging. The number of maturing commercial mortgage backed securities loans from 2005-2007 is almost double, increasing challenges. New risk retention rules will take effect later this year, requiring lenders to retain 5% of risk, which may improve underwriting standards but further reduce CMBS activity.

1. CMBS Market Overview
by Ivan Kaufman
ARBOR.COM • 1.800.ARBOR.10

2. Ivan Kaufman’s Real Estate Market Overview
• CMBS volume has dried up and there are significant challenges in
trying to originate CMBS loans effectively.
• Not only does the market need to match the level of CMBS
issuances over the last few years, but more needs to be done to
support the growing number of maturing CMBS loans.
• The number of 2005-2007 loans maturing has almost doubled.
Key Takeaways – CMBS Issuance

3. Ivan Kaufman’s Real Estate Market Overview
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US CMBS Issuance
Source: Arbor, MorningStar, CREFC
CMBS Issuance
In Billions of US $

4. Ivan Kaufman’s Real Estate Market Overview
• CMBS spreads have widened out, making it a challenge for deals
to get done.
• Not only have spreads widened, but there are less proceeds and,
in general, fewer types of assets obtaining CMBS financing.
• This is in part because of the risk retention regulations that will go
into effect later this year.
Key Takeaways – CMBS Spreads

5. Ivan Kaufman’s Real Estate Market Overview
Source: Arbor, Commercial Mortgage Alert, Trepp
CMBS Spreads
New-Issue Spread over Swaps
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16
10-Year AAA Spread

6. Ivan Kaufman’s Real Estate Market Overview
• The CMBS market historically has created issues within the
marketplace. Risk retention rules are created to avoid such
complications.
• The new distributed risk model will force whomever buys a risk
piece to keep that risk piece.
• The buyer has to maintain 5% of the risk and retain it.
• Therefore, every loan has to be fully underwritten, and lenders
will be careful about what is being originated. This is a better
model.
Key Takeaways – CMS Risk Retention

7. Ivan Kaufman’s Real Estate Market Overview
•The minimum risk retention requirement is no less than 5 percent
for any asset that a sponsor, through the issuance of ABS interests,
transfers, sells or conveys to a third party, unless an exemption
applies.
•The Agencies did not increase the minimum requirement of 5
percent, but they noted that parties to a securitization transaction
are free to agree that more risk should be retained.
•Although the rules do not prohibit more than one sponsor from
participating in a securitization, they do not allow multiple sponsors
to divide the required risk retention.
•Furthermore, sponsors are generally prohibited from transferring or
hedging the interests they retain for two years from the date of the
closing for the securitization, although the time limit for residential
mortgage-backed securities (RMBS) is five years.
•Each B-piece buyer must:
•Perform an independent review of the credit risk of each
securitized asset
•Pay for the B pieces in cash at closing without financing
•Must not be affiliated with any party to the securitization
Dec. 24, 2016
Rules
compliance
deadline for all
multifamily
loans
securitized
after this date