CMBS issuance could increase to $125 billion in 2014 from an estimated $90 billion in 2013, according to Anthony Orso, who has an extraordinarily bullish view of the sector.
There are $1.7 billion loans coming due in the future that will create borrower demand for refinancing. Some improvement in property prices has helped bolster equity and mitigated the threat that loans underwritten in periods where underwriting was too loose will fail to qualify for refinancing.
Also supporting the forecast for growth is the fact that investors are hungry for product, Orso says. CMBS have been more attractive on a relative value basis than corporate bonds of late.
The number of institutional b-piece buyers who purchase deals’ riskier tranches has been expanding, even with the new need to generally hold the CMBS at least five years, he says.
“It’s a tremendous vote of confidence” when it comes to the sector’s credit, Orso says.
Underwriting has loosened but “we’re still adhering to the guardrails as a result of the meltdown,” he says. Pro forma income underwriting is the “No. 1 concern for investors,” but Orso says it is scarce to nonexistent in the current market.
The company plans to expand its product mix in terms of types of financing in the coming year.
Cantor itself is less heavily reliant on the riskier large loans than others in the market thanks to the “boots on the ground” strategy it used to build the business early in the market’s recovery, Orso says. Its commercial mortgages generally range from about $5 million to $600 million in size.
The company has stressed the development of a local presence throughout the nation and this in combination with a stress on efficient closings has allowed the company to lay claim to the title of No. 1 player in terms of loan count this year.
Cantor also is diverse in terms of its product and geographic mix is a way that can mitigate credit risks. About half of its production lies outside of New York where concentration tends to occur. It funds office, hotel, self-storage, industrial properties, student housing, retail and multifamily.
Retail concerns as Internet shopping erodes traditional demand for space and traditional mall demand has been offset by new demands for space from the online retailers and new shopping center design and tenants in line with evolving customer demand, he says.
Freddie Mac and Fannie Mae have dominated multifamily with about a 60% market share. They have been slowly scaling back at the direction of their regulator, but their regulator will have a new head soon.
“We are planning to do a little less as far as total volume, depending on the direction of our regulator,” Mitch Resnick, Freddie’s VP of multifamily loan pricing and securitization, he says. Freddie as of mid-December forecast a $25 billion in multifamily issuance for 2014, down from an estimated $28 billion for 2013.
“We’re well positioned either way,” Orso says, citing what he calls a “significant shortage in multifamily units” given that the number of consumers who qualify for a home purchase mortgages has decreased and demographics also support long-term demand.
Uncertainties related to interest rates and the possibility of another government shutdown that could affect the capital markets and cause interruptions in the company’s business such as it had to weather in the past year are what he says are his only concerns.
There is little that can be done about what are unpredictable risks and Cantor will continue to stick to its strategy of issuing deals on a regular basis although it is wary of it, he says.