No one could have predicted the speed of recovery in the commercial real estate space, said panelists speaking today at the American Securitization Forum’s 2011 annual meeting.
“The speed of recivery has been a surprise and it's placing very high-quality paper to our investor base,” said Howard Kaplan, partner at Deloitte & Touche, speaking at a panel this morning. “It has really worked itself back to a normal, functioning market.”
Behind its success is the structure, which, unlike RMBS product really sees fewer prepayments. These deals are typically structured with punitive penalties and investors are more aware on when the loans come due.
The real concern is whether CMBS expanded too fast. Kaplan said that the market really only has appetite for high-quality loans and its unlikely that the pool of these types of loans will grow substantially.
The deals have also been substantially smaller in size. Douglas Murray, group managing director at Fitch Ratings, who also spoke on the panel, said that in the current environment it would be harder to get a mega deal off the ground and buyers are less reluctant to buy longer-term paper.
For now, panelists said they expect the market this year to grow to $40 billion dollars. “If you put it into context of 2007 volume where $230 billion was issued, its clear that volumes are down but the quality is up and the underwriting is much stronger,” said panelist James Ahern, global head of securitization at Societe Generale.
