Based on a new white paper by the Mortgage Bankers Association titled Role of CMBS in the Financing of Commercial and Multifamily Real Estate in America — the CMBS market plays a significant role in the U.S. Commercial and Multifamily real estate finance industry.
“MBA is a strong advocate for its commercial/multifamily membership, and this white paper is designed to educate members and industry stakeholders about the significant value and innovation that commercial mortgage-backed securities bring to the overall market,” said Bill Killmer, MBA Interim Head of CREF and Senior Vice President of Legislative & Political Affairs. “CMBS lenders provide the necessary capital that finances infrastructure where individuals in large and small communities live, work and play.”
MBA’s white paper highlighted how the securitization technology utilized in CMBS provides a variety of investor benefits, including diversification with exposure to varied sponsors and collateral in different markets, as well as the ability for investors to purchase a mix of securities with differing risk profiles depending on their risk appetite. Seven key factors are explained as to why private label CMBS is important to the commercial real estate finance landscape.
“CMBS is a unique capital source with innovative securitization technology, and it remains a vital component of the over $3.5 trillion commercial real estate finance industry,” said Chris LaBianca, Managing Director, UBS, and 2020 Vice Chair of MBA’s Commercial Real Estate/Multifamily Finance Board of Governors (COMBOG). “Borrowers, investors and communities across America are better off for having CMBS as an additional source of liquidity.”
CMBS lenders provide the following market functions:
- Are natural providers of long term fixed-rate, and in some cases, floating rate capital to secondary and tertiary markets, where capital was not as plentiful prior to the development of CMBS;
- Diversify risk in the system by distributing investments with risk/return characteristics that are catered to investor needs;
- Can play a critical role when other capital sources become constrained due to economic or regulatory issues, as occurred in the 1990s or due to concentrations (i.e. banks can only have so much exposure to one borrower or market, etc.);
- Are consistently in the market for loan opportunities, albeit with the volatility of the capital markets being a feature of the product;
- Are providers of a wide variety of non-recourse, assumable loans of various sizes – characteristics which are attractive to sponsors;
- Will lend on a wide range of property types, borrowers and geographic locations; and
- Have provided standardization of underwriting, reporting and documentation that has benefited both CMBS borrowers and investors, as well as the broader commercial real estate finance industry through increased transparency.