SAN FRANCISCO - Market globalization and an increasing diversity of investment opportunities will characterize the commercial mortgage-backed market over the next decade, said panelists here last week at a CMBS session of the Mortgage Bankers Association of America's 87th Annual Convention.
The forum, which discussed the changing landscape of commercial real estate securitization and the impacts for mortgage bankers of originating collateral for potential CMBS transactions, set forth analyses of the past, present and future of the commercial mortgage securitization business.
The panelists agreed that the changing environment in commercial real estate securitization is easy to spot: names such as Nomura, Lehman, Criimi Mae and Conti have been eclipsed by those of Principal, First Union, Deutsche Bank, GMAC and UBS.
Indeed, the profile of conduits in the market two to three years ago is completely different than what the market looks like today, the panelists noted. The fact that independent conduits had a rough time in the past few years is a testament to their absence today.
One speaker pointed out that in the past these entities could very easily utilize warehouse lines of credit to fuel their origination business, but efforts at marking-to-market those credit lines essentially eliminated this funding vehicle and priced these names out of the securitization realm.
There was also consensus that the "deconstruction" of the securitization business contributed to the change in the market as well.
For instance, separation of lender as master and special servicer as well as originator brought many new players into the market, splintering many aspects of the overall process.
In addition to the changing conduit names highlighted above, an increase in refinancing activity is expected to impact the CMBS market as well.
According to Diana Chazaud, managing director and senior advisor at Credit Suisse First Boston, the market is expected to be "relatively flat" over the next couple of years, with "a boom in refinancing activity" in the middle of the next decade.
This refi rush is the result of the fact that many loans which were originated in the mid-90s are likely to get refinanced. In fact, Chazaud noted that mortgage bankers she queried agreed with that, noting that loans they service will "likely be part of this refi rush over the next few years."
Until then, Chazaud said that CMBS volumes will remain flat.
Additionally, panelists mentioned that the current-day market has seen a reconstitution of market players as they sit in the transaction. For instance, the dominant servicers in the industry are now originators, reducing the splintering seen in the recent past.
Further, the inclusion of one entity as special and master servicer looks to be more and more common, despite A-B paper coming to the fore and the unique needs of that structure.
One common forum prediction was increased market globalization going forward.
According to Richard Jones, a partner at the law firm of Dechert, Price & Rhoads, the sector is bound to see the broad exporting of U.S. structuring technologies and the cross-border structuring of pools, though this certainly won't happen overnight.
In fact, the idea of seeing such collateral diversity will likely take place towards the end of the decade, Jones noted.
Additionally, the panelists suggested that the ever-evolving variety of financial instruments in the marketplace will provide buyers with a wealth of investment opportunities.
The panelists agreed that real estate was a once-shunned asset class; that it is now becoming more securitized in nature simply suggests that risk diversification will allow this collateral to be viewed by many as a more attractive buy.