The Real Deal New York

CMBS shockwaves

A look at the abrupt summer stall in the commercial mortgage market that could hinder New York City’s commercial real estate recovery

September 14, 2011 02:49PM
By C. J. Hughes

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Illustration by David Cole
July 27 was a dark day for commercial mortgage-backed securities, or CMBS.

On that day, Goldman Sachs and Citigroup were set to begin selling a $1.5 billion batch of CMBS, secured in part by some New York City properties.

But at the last minute, Standard & Poor’s essentially put the kibosh on the deal. The rating agency said it had discovered a “glitch” in its methodology and would need more time to vouch for the worth of the mortgages at the heart of the bonds.

Without the blessing of S & P, the deal died. And with that, the CMBS market — in which pools of real estate loans are bundled together and sold to investors — hit a major snag few had anticipated when the year began.

S & P’s move — along with wild stock market fluctuations, concerns about the debt crisis in Europe and the renewed round of economic problems — helped knock the wind out of the sails of the CMBS market and confirmed the industry’s worst fears of a slowdown. Many expected the CMBS market to quadruple in value from $13 billion in 2010 to $50 billion by the end of 2011, as investors started to regain faith in the strength of the commercial real estate market. Instead, they now expect CMBS issuances to be just $30 billion this year, which calls into question reports of the market’s recovery. [more]

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