Commercial mortgage-backed securities could make a relative comeback this year. But issuance will likely still be a far cry from what it was at the height of this market.
Mary Ellen Egbert, managing director and head of the restructuring group at JPMorgan Chase, told attendees at the recent Goodwin Procter/Columbia Business School real estate capital markets conference in New York that CMBS issuance could total as much as $50 billion this year. Others predict closer to $40 billion.
Devin Murphy, managing director of investment banking and vice chairman at Morgan Stanley, said while moderating a panel at the conference there was about $10 billion of CMBS issuance in 2010. So this year still could be a tremendous improvement on that.
As far as performance and real estate recovery, Ric Clark, president and chief executive officer of Brookfield Properties Corp., told attendees at the conference, he considers the market to be “largely” but “not completely” out of the woods. There continues to be a lot of talk about interest in coastal markets, but Clark said he believes there is still a lot of trouble to come in assets in “Middle America.” Murphy also asked whether there could be a “mini-bubble” in areas like New York.
Trepp LLC’s January delinquency report last week showed CMBS and multifamily late-pays are continuing to rise, although not as fast as they have been. The JPM Chase executive reiterated the belief stated by many in the market that, “we are near the bottom.”
But in addition to the continuing rise in delinquencies, the need to refinance maturities remains a concern clouding the market’s future. “We have a lot of maturities [coming due in the next two years],” Alan Leventhal, chairman and CEO of Beacon Capital Partners, noted during the conference panel discussion.
He warned that if aggressive underwriting returned there could be a risk of a “double-dip” in which the economy sinks once again into recession. Commenting on the resurgence seen in CMBS, he said, “I think it’s driven largely by lack of product.”
David Hodes, founder and managing partner of Hodes, Weill & Associates, said during the panel discussion he believes, “You’re going to see capital migrate to more traditional real estate formats.”
Among the concerns that could affect commercial real estate this year are strains on local government finances. “I think we are going to see municipal failures,” he said.
Former Federal Reserve vice chairman Alice Rivlin, who was the first director of the Congressional Budget Office, said in a separate presentation at the conference that the federal deficit, an issue she has been working on with a group, also is a concern that could ultimately hurt the U.S. real estate markets and the market for U.S. Treasuries, the latter having the potential to put upward pressure on interest rates.
Another set of issues some distressed governmental entities back at the local level have to contend with is a combination of fewer financial resources, smaller population and greater space availability, noted former HUD secretary Henry Cisneros. Cisneros, who also is the current executive chairman of CityView, said Detroit, for example, once had a population of almost 2 million and now has a population of under 1 million.
“They’re going to have to figure out how to downsize” as well as find uses for the space that they have, said Cisneros, whose company is an investment firm focused on urban real estate, housing and infrastructure.
