Right now many of us are focused on a new White House administration which will potentially deliver changes that could greatly impact the commercial real estate industry. While we can’t predict what is coming, we must evaluate some recent legislation that is greatly impacting the industry this very second. New lending guidelines are now in place which are significantly affecting the ability to replace maturing CMBS loans with new longer term loans. To address this changing lending environment, at David B. Norton Inc., we have modernized our role as real estate mortgage brokers/investment bankers to fit today’s challenging business climate. We conduct a thorough underwriting of the transaction prior to engagement. We take the time to identify a property’s strengths, weaknesses, and importantly, the project’s viability within the new lending environment. Foremost, this includes developing the most favorable and efficient capitalization strategy for the asset and the sponsor.
2017 will see approximately $100 Billion in maturing CMBS loans in a new underwriting environment where borrowing is both more expensive and more complicated. New regulations in the CMBS market require risk retention that requires lenders to keep a portion of new loans on their books. These risk retention rules not only raise the cost of the loans, but also make the lenders far more conservative in their underwriting. Many of the CMBS loans that are currently maturing were originated 10 years ago when properties were at the peak of their valuation and underwritten very aggressively at high leverage thresholds. Although property valuations have returned from the lows of the previous few years, these properties still may not have a valuation required to qualify for a traditional loan. Many of the loans were written when lenders were routinely originating debt packages of 75%+ of the property value, but today’s lenders are reluctant to go above 60% to 65%.
2017 will see approximately $100 Billion in maturing CMBS loans in a new underwriting environment where borrowing is both more expensive and more complicated. New regulations in the CMBS market require risk retention that requires lenders to keep a portion of new loans on their books. These risk retention rules not only raise the cost of the loans, but also make the lenders far more conservative in their underwriting. Many of the CMBS loans that are currently maturing were originated 10 years ago when properties were at the peak of their valuation and underwritten very aggressively at high leverage thresholds. Although property valuations have returned from the lows of the previous few years, these properties still may not have a valuation required to qualify for a traditional loan. Many of the loans were written when lenders were routinely originating debt packages of 75%+ of the property value, but today’s lenders are reluctant to go above 60% to 65%.