The 411 on CMBS

Amy Campbell, Senior Editor

January 16, 2008

3 Min Read
The 411 on CMBS

Every think about money, honey? Sure you do! We all do: How much do we have? How much do we need? Where can we get more? What happened to the amount we had?

Business owners think about it twice as much (or more). And with the shifts that have been taking place in the finance market over the past year, it's no wonder. Just try being a new storage developer or owner these days. You can still get funding, but the hoops you have to jump through are changed.

I just received a newsletter from Buchanan Storage Capital, in which the company shares news about its transactions and events, highlights key finance rates, and comments on industry trends. Today's mailing included a message from BSC's new vice president of business development, Tim Casey, regarding the current CMBS market. This has been hot topic in self-storage finance circles in recent months, so I'd like to share Tim's note here. It's a summary of insights shared at the recent CMSA Investor Conference.

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On January 7, 1,400 professionals within the commercial mortgage industry gathered in Miami Beach for the semi-annual Commercial Mortgage Securities Association (CMSA) Investor Conference to discuss the current state of the Commercial Mortgage Backed Securities (CMBS) market. The theme of the conference was: Shaken or Stirred, Reactions to Increased Volatility. One of the general conclusions was that it is time to batten down the hatches; things are going to continue to shake and stir.The following is a summary of general comments:
 
Fear is outweighing Greed: Some investors are backing away from buying CMBS securities so lenders are cutting back on their loan originations. Major conduits were asked about their last six months of volume with some lenders who had been generating close to a $1 Billion per month admitting that their last six months of volume ranged from $0 to $100 Million per month.
 
Domino effect: Some predicted that 2008 CMBS volume will be 50% of 2007 due to new underwriting standards and lower LTVs which are preventing acquisition deals from getting to the finish line. Due to the bid/ask spread many sellers are not selling and buyers are not buying. Rollover of 1998 deals may also be greatly reduced because 30% of the CMBS market has been defeased.
 
Revenge of the Nerds: Life Companies are becoming more active. Underwriting is actually coming back to where Life Companies have always tried to be. While the Life Companies are jumping in they may never make up the void being left by CMBS.
 
Silver Lining: If not for overall stabilized market fundamentals within commercial real estate (i.e., supply/demand, vacancy/occupancy, rent growth, etc.) the industry would be in real turmoil.

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If you'd like to read more about the CMBS market or other pressing finance issues pertaining to self-storage, check out these recently published articles in the ISS online archive:

You can also attend David Smyle's (Benchmark Financial) seminar on "The Sub-Prime Loan Markets and Commercial/Conduit Financing" at the Inside Self-Storage Expo in Las Vegas. That's coming up in just a couple of weeks (Feb. 5-8), and David's session is part of the educational lineup included in our basic registration package. We're also featuring a seminar titled "The Dynamic Influence of Wall Street and the Finance Market on Self-Storage," presented by Neal Gussis, Shawn Hill and Devin Huber of Beacon Realty Capital.

Are there any new storage owners out there who can share insights about getting storage financing from their experience with a recent transaction? If you've got a related comment, please do post it in response to this blog.

About the Author(s)

Amy Campbell

Senior Editor, Inside Self Storage

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