Glass Half Full in CMBS Markets

Post-financial crisis, commercial mortgage backed securities (CMBS) have been retooled and rebranded, and now called “CMBS 2.0”. In its second act, underwriting standards have been tightened, average loan-to-value has been reduced, and investors are more closely scrutinized than ever. However, there is some good news, too. We asked Ackman-Ziff Managing Director Marc Warren to show us where the glass is half full:

“Deemed Approval” becoming more common. Borrowers are increasingly requesting a “deemed approval” clause, stating that if the item in question is not approved by the next “x” business days (with another "x" days if they don't respond the first time), it is considered automatically approved. Today’s loan docs are more scrutinized and lenders face increased competition, so servicers have less ability to take their own sweet time if such provisions are made.

An easing in interest-only (IO) loans. Pre-crash, issuing IO loans was a given. Post-crash, forget it. Now we are moving toward the middle of the two extremes; however, IO periods are shorter than they used to be, depending on the property, leverage, and the situation.

Lenders willing to work with recently signed documents. Given increased lender competition, Borrowers sometimes can save time and money by presenting docs that were already submitted to or signed for other lenders.

Marc says that, overall, borrowers are getting a better deal than they would have during the beginning of CMBS 2.0 but their loans are still head and shoulders safer than those made pre-Crash.

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