Monday, August 13, 2007

CMBS: some call it lending woes. I still call it the return of reality and sanity.

Here's a Reuters story analyzing the current state of the CMBS market. As we've discussed before, it says that in spite of internal strength in the market, borrowing costs are up, lenders are having a harder time selling the bonds from which the loans are made, equity requirements are up, meaning that mezz loans are starting to come back into vogue for highly-levered deals.

Other than the fact that lenders are having some trouble pricing loans, I guess I don't see the "woe," unless I represent a client that bought a property at a 4 cap who is trying to flip it. The CMBS spreads have been crazy low for a long time, and the freewheeling nature of some of the lending had to end sometime. Maybe I am naive, but what I am seeing here is largely a return to the status quo ante of, say, seven years ago. And I still say that is generally not a bad thing. The price corrections should be temporary so long as rents continue to rise and vacancies continue to decline. Sound fundamentals do not mean woe, at least but to me. Of course if the fundamentals sour combined with a credit crunch, then I may change my tune.

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