CMBS could make a comeback, experts say

Panel agreed that multifamily market remains strong

TRD New York /
Mar.March 16, 2016 03:05 PM

As banks retreat from funding certain projects, commercial mortgage-backed securities may return with renewed vigor over the next few months.

“You’re seeing the market solidify itself,” said Qahir Madhany, a principal of the Blackstone Group, at a panel on Wednesday. “We do think there should be a rally of CMBS over the next couple of months.”

Madhany, speaking at New York Law School’s “The Keys to the Future of NYC Real Estate” panel, noted that the strength of these securities has recently coincided with the health of equities and oil — two sectors that suffered in mid-February. He said the sectors have recovered quickly, and he expects CMBS to follow suit.

Lenders have increasingly backed off CMBS issuances since mid-2015, largely due to the volatility of global markets and pending federal rules — dubbed the “risky-retention” policy — that will require lenders to keep a portion of the loans on their balance sheets, increasing their cost of capital, The Real Deal reported in February. Jennifer McCool, chief legal officer at Related Companies, said that as long as other funding sources, such as balanced-sheet lenders, remain strong, the market in Manhattan shouldn’t be dramatically impacted.

“Over the past two years, CMBS debt markets have really fueled the recovery, in particular Manhattan,” she said at the panel. “Now, in looking at debt opportunities, the CMBS space has really dropped off, and folks who are still in that game, the pricing is not nearly as competitive.”

Ron Lo Russo, tri-state president at Cushman and Wakefield, said that the residential market in general is seeing a softening, with the exception of multifamily properties, which remain especially attractive to foreign investors.

“When you have the thread of negative interest rates in a lot of countries, New York is a great place to park money in large buckets,” he said.

He noted that the city’s aging infrastructure may imperil its longevity as the go-to city for millennials to — as various marketing campaigns hammer home — live, work and play. Jessica Lappin, president of the Downtown Alliance, cited the new Fulton Street Station and the $4 billion World Trade Center Transportation Hub — which opened earlier this month and has long been criticized for its massive cost overruns — as crucial examples of steps that have been taken to revitalize the city.

“We do, on a big scale, trail other cities,” she said. “But here, in Lower Manhattan, we really made that investment.”

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