Wednesday, August 1, 2007

As the CMBS market tightens, should cash buyers rejoice?

Today's Journal had yet another story about increasing spreads and borrowing costs in the CMBS market. An estimated 30 bp hike in two weeks is nothing to sneeze at. Even AAA rated bonds are jumping, probably because people are flocking there to avoid taking on riskier deals right now. Face it: some investors are spooked. And predictions are that highly-leveraged loans may get priced out of the market in the short term.

For those of you investors out there that have the tons of cash to buy property and then leverage it down the road, or those who can do deals with a lower LTV, then I think you'll be in a good position to pick up some deals in the near future. Buy now, hold the property and then lever it later when credit loosens again. And it will loosen, sooner rather than later in my humble opinion. Of course, this means not buying property at a 5 cap, as your IRR on an all cash deal might not be as attractive as you want, depending on your investment strategy and goals. But remember that I'm just the lawyer. You figure out the numbers.