Magazine article Mortgage Banking

Coming of Age

Magazine article Mortgage Banking

Coming of Age

Article excerpt

COMMERCIAL REAL ESTATE HAD A boffo decade in the 1990s. And as we proceed through the first decade of a new century, the outlook remains bright. The successful harnessing of capital for real estate, at least partially, has resulted from the emergence of a mature secondary market to funnel global capital into commercial mortgage debt. But commercial real estate debt of all kinds has performed extraordinarily well, serving as a magnet for still more capital pouring into the sector.

As we move through 2005, we see a market for commercial real estate debt that has emerged as a true rival for the money from investors who for ages relied on the stalwart options of stocks and bonds.

Securitized commercial mortgage debt (commercial mortgage-backed securities--CMBS) is a newly liquid asset class that undeniably has proven its worth in terms of superior performance. As a result, it has staked out a prominent place in the minds of chief investment officers as they dole out funds to the various blue-chip asset classes on behalf of institutional investors. And as the debate over Social Security reform introduces the notion of private investment accounts for average workers, having a new investment option that offers superior returns for modest risks is a real positive.

Issuance volume in recent years charts the growth of the CMBS sector. Fitch Ratings, New York, estimates that domestic issuance of CMBS totaled $95 billion in 2004. That is up significantly from the $78 billion in 2003 and $52 billion in 2002, according to Commercial Mortgage Alert.

This is not just an American phenomenon. It is important to note that in 2004, global issuance for CMBS was very strong as well. But closer to home, it is instructive to look at the share of U.S. commercial/multifamily mortgage debt outstanding accounted for by CMBS issuers in 2004 versus 1994. The securitized share was just 6.6 percent in the fourth quarter of 1994. By the third quarter of 2004, that share had grown to 20.7 percent, according to Mortgage Bankers Association (MBA) numbers.

Having just celebrated a successful MBA Commercial Real Estate Finance/Multifamily Housing Convention & Expo in February, in San Diego, with record attendance, it is a good time to recognize the achievements of all those who have helped build the commercial/multifamily real estate debt markets. After all, MBA member companies and others in the private sector did much of the heavy lifting in constructing new, diverse products to meet the dynamics of today's market.


This is not to say the work is done. There is much left to do. With new recognition and more widespread utilization of this investment class will come greater regulatory scrutiny. And, as with the other mature asset classes, CMBS will have to evolve tools to give investors more timely access to accurate performance information. The market will demand this. And much of this burden to find new ways to disclose timely performance data will fall on mortgage servicers. MBA is playing a leading role in helping to develop best practices on the servicing side and ease of access to information all across the mortgage production and servicing chain. There is much that is going on, and I will briefly review some highlights.

America's commercial mortgage industry has risen to the challenge of providing the increased transparency that's needed. Transparency through standardization and greater communication are the MBA's and its members' top priorities. …

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