Abstract: There's precious little in the way of credit that financial wizards haven't tried to securitize these days, and the concept of turning commercial mortgages into securities isn't new. But the business has been rejuvenated. Mark 1993 and 1994 as the watershed years when institutional investors, banks, and mutual funds finally warmed to securitized commercial mortgage-- pools and accepted them as legitimate fixed-income investments, proclaimed 1995 Emerging Trends in Real Estate, an annual report produced by Real Estate Research Corp. and Equitable Real Estate Management Inc. are the choke Commercial mortgage-backed securities fall into two broad types, according to The Rating of Commercial MortgageBacked Securities, produced by Duff & Phelps Credit Rating Co., Chicago. One involves issuance of a bond that is collateralized by a mortgage or mortgages. The other is the passthrough certificate, which represents ownership in a trust that owns commercial mortgages. The method of choice for getting involved in this market, according to the Duff & Phelps report, appears to be the conduit--a mechanism that channels loans from lenders to an investment banking unit that creates and markets securities. Conduits represent a seminal change in real-estate lending, the report observes. Much like their single-family counterparts, today's commercial conduits provide a source of capital that replaces much of the thrift lending and small volume insurance loans. While launching conduits has become quite popular, there have been relatively few that have brought a pool transaction to market. The conduits selected vary accroding to the bank's business strategy and the type of investment property collateralizing the loan with multifamily property loans. For example, some lenders want to work with the estab- lished residential mortgage market agencies, while other assets must be sold to more specialized conduits. The reason differences exist is that the underlying properties can exhibit very different characteristics, even though all are investment properties. Apartment leases make for a more fungible cash flow, because they are short-term and don't represent a specialized product with limited demand, points out David Lowery, who is partner and chairman of the Real Estate Capital Markets Group of law firm Jones, Day, Reavis & Pogue, Dallas. By contrast, office space may face different levels of demand and is subject to longer-term leases, Lowery continues. Strategies of four aggressive securitizers Bank participation in conduits with new loans is building but hasn't hit stride yet. Here are snapshots of four institutions that are aggressively pursuing this business: Bank of Boston introduced its program, in partnership with Goldman Sachs, in late July 1994, but doesn't expect to bring its first package to market until the third or fourth quarter of this year, according to Denise Delaney, division executive, Real Estate Capital Markets. Delaney notes that commercial real-estate loans take a great deal of prep, what with appraisals of future tenancy and such. Delaney says her division is advertising its willingness to make securitized mortgages on retail, multifamily, and industrial properties in New England and the Southeast. The division is also willing to do office properties, though that's not as high a priority as the other types because the rating agencies aren't too favorable towards office properties. Delaney explains that the agencies feel that that market remains weak compared to other types of commercial property. Like most bankers involved in this new form of bank finance, Delaney likes to use such phrases as one-stop shopping to describe the appeal of venturing into the business. The bank will only go up to five years out on a commercial mortgage, with recourse to the individual principal, for its own portfolio, whereas the securitized mortgages, handled by Goldman Sachs, can be obtained for terms as long as 20 years without recourse. …
Publication Year: 1995
Publication Date: 1995-04-01
Language: en
Type: article
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