Mitsubishi Corp. will start originating CMBS in the U.S. through a joint venture with Five Mile Capital Partners (FMC), an asset management firm specializing in real estate debt and related products.
The business called MC-FMC Commercial Real Estate Finance Management will be executed via Mitsubishi's U.S. alternative asset management subsidiary named MC Asset Management Holdings (MCAMH).
The business will underwrite senior commercial mortgage loans to be placed in CMBS securitization trusts. The goal is to originate over $1 billion of loans annually.
The company said in a press release today that there is a strong need for new lenders to take the place of financial institutions that have increasingly stepped back on originations as a result of the stricter regulatory environment that makes issuing deals less appealing.
At the same time, Mitsubishi said that investor appetite is increasing again for less leveraged and conservative real estate related debt products.
"With financial institutions facing stronger regulations such as Basel III on the one hand, and the market facing maturities of those CMBS issued in 2005 - 2007 on the other hand, there is a strong need for new lenders to take the place of financial institutions," said the company in a press release.
MC, through MCAMH, aims to leverage this opportunity to enter into the CMBS origination business.
Mitsubishi's entrance comes at a time when CMBS new issuance volume is increasing – year-to-date total CMBS issuance is at $19.6 billion – and the balance of legacy transactions outstanding is still shrinking, Credit Suisse analysts said. Because of this decrease, new issuance will have an even greater impact.
The outstanding legacy conduit balance went down by an added $6 billion in the last month, roughly 1.2%. This is in line with the typical monthly drop this year, analysts stated. The current balance of conduit deals analysts used in their analysis is $504 billion, which has fallen by over 8% year-to-date. This comes after dips of 11% in 2011 and just 7.4% in 2010. The total outstanding volume has decreased by over 30% from the peak in December 2007.
Analysts noted in their 2012 Year Ahead Outlook that the decreasing supply is still a positive fundamental for the sector, although if the outstanding balance continues to signficantly trend down, it will be detrimental to liquidity and become a negative technical, they said.
They projected net supply after including 2012 issuance to be down $25 billion to $35 billion. Greater-than-expected paydowns, over the first few months, might make that projection too conservative, Credit Suisse analysts said.