Texas commercial mortgage-backed securities (CMBS) are fixed rate bonds that represent an investment in a portfolio of varying property types and sizes, and that are backed by commercial real estate mortgages. Generally, the loan-to-value is 60 to 70 percent with a 10-year loan term, interest-only payments, and a balloon payment at the time of maturity. When they came on the market in the 1990s, they proved very useful to commercial real estate developers due to the improved loan availability and rates.
As of May 26, 2017, $27 billion in commercial mortgage-backed securities have been issued—down 6.6 percent from the previous year. The reduction is due, in part, to the risk-retention regulations that require the issuer to hold 5 percent of the securities. These regulations favor bigger banks, leaving many of the smaller lenders to observe from the sidelines. Another factor is based on the cyclical nature of things and the growing concern that the market has reached the summit and is heading for a decline.
In 2016, banks made up most of the capital providers—a little over 50 percent of investors. Fannie Mac and Freddie May came in at 18 percent of debt investors while life insurance companies made up 11 percent of the group. The remaining were securitized debt holders such as CMBS. What’s interesting to note is the dramatic drop in CMBS lending, peaking at $229 billion in 2007 and dropping off to $76 billion in 2016. This drop off has been blamed on rising fears of saturation as well as the mounds of loans that were issued in 2005 to 2007 and that are now maturing. The numbers, however, suggest that there is little cause for concern as the $65.6 billion in debt that reached maturity during the first six months of 2017 only showed a 6.4 percent delinquent rate
Texas Commercial mortgage-backed securities can be a good choice for longer-term acquisitions; however, the prepayment penalties often associated with these types of loans can serve as a deterrent. In addition, the new requirements have meant that obtaining these types of loans can be more difficult and time to funding longer as underwriting has tightened its belt. Loans are also based on LTP or loan-to-purchase as compared to LTV or loan-to-value which may require additional equity. Modification and additional fees such as insurance review fees can add up. These types of loans have certainly served their purpose and helped many a developer obtain the needed capital. Just be sure to add in all the varying factors when laying out a budget and consider alternative options.
At Level 4 Funding we work with hundreds of private investors, one who might just be interested in your next project. Our private hard money loans provide quick access to capital, terms up to 60 months and competitive rates. Call us for a complimentary quote.
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.