A recent commercial mortgage-backed securities (CMBS) conduit transaction backed by a diverse pool of loans from JP Morgan Chase (JPM)
and Ladder Capital Finance
marked not only one of the first CMBS deals since 2008, but perhaps the beginning of credit revival for commercial real estate (CRE), according to Moody's Investors Service
The $716m JPM CMBS
, expected to close next week, signals the possible revival of a key type of securitized commercial mortgage deal, and the expansion of loan leverage, writes Moody's senior analyst Joseph Baksic, in commentary today.
Following the JPM deal, at least one other transaction was in the works. Standard & Poor's
(S&P) recently assigned triple-A ratings to senior classes of Impact Funding
's multifamily mortgage pass-through certificates, series 2010-1
. The agency noted moderate leverage in the transaction, with a 69% loan-to-value ratio among the loans, which are well-seasoned at an average 60 months.
"The capital markets have historically financed a substantial share of commercial real estate debt, but during the financial crisis, the disruption of the CMBS conduit securitization market significantly limited the availability of credit to commercial real estate borrowers," Baksic said. "As the cost of borrowing associated with higher leverage financings has recently become less prohibitive, an increased number of commercial real estate sponsors have been able to obtain higher leverage loans at lower spreads to refinance their maturing loans."
Baksic added: "Concurrent with this improvement in credit conditions, several more CMBS deals similar to the recent conduit transaction are in the pipeline."
The JPM deal, marking the first conduit offering in nearly two years, represents a significant step in jump-starting CMBS issuance. Getting to this stage in restarting CMBS required multiple other steps, according to the Moody's commentary.
Single-loan transactions restarted first, Baksic wrote. Late in 2009, three single-loan, multi-property, low-leverage securitizations debuted. At that time, the cost of borrowing was high enough to be "prohibitive" for most CRE sponsors that needed higher leverage loans at lower spreads to refinance their maturing debt.
"These single-loan offerings attained attractive rates largely because the loans were made on unencumbered properties, allowing for low leverage," Baksic said.
In April 2010, the Royal Bank of Scotland
(RBS) and Natixis Real Estate Capital
issued the first multi-borrower large-loan transaction
. The offering included six loans and low diversity and leverage similar to previously issued single-loan securitizations. This pooling of multiple loans from multiple borrowers was a key step in reviving the CMBS market.
The latest offering by JPM and LCF represents yet another step toward more traditional CMBS conduit offerings, as it securitizes diverse multi-borrower pools of higher-leverage loans.
The deal, JP Morgan Chase Commercial Mortgage Securities Trust 2010-C1, is backed by 36 loans secured by 96 commercial properties with an aggregate principal balance of approximately $716.3m, as HousingWire reported
. Moody's noted the increased diversity reduces the exposure to idiosyncratic risk held by senior certificate holders.
The portfolio bears a weighted average loan-to-value of 80.4%, a low leverage ratio under previously accepted conduit standards during the market peak in 2007. The LTV ratio is still higher than the ratios for the three CMBS single-borrower securitizations offered in 2009, Moody's said.
Write to Diana Golobay
Disclosure: the author holds no relevant investments.