Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Monday, 10 June 2019

Today's CMBS: Born of Necessity in Capital-Starved Times

In the wake of the savings and loan crisis, few lenders were willing to write mortgages against commercial properties. But a team led by Ethan Penner saw an opportunity to originate commercial mortgages with an eye toward securitizing them.

Commercial Real Estate Direct Staff Report

"Our need will be the real creator." - Plato

When Ethan Penner and his team in 1992 started originating commercial mortgages with an eye toward securitizing them, few lenders were willing to do so. Times were so desperate that even the best operators had a hard time getting a mortgage for their properties.

To understand what exactly was going on, you'd have to rewind three years, to 1989, the peak of the savings and loan crisis, when more than 1,000 thrifts failed. Those institutions were among the top sources of mortgage capital for commercial property owners. Their failure and the regulations that ensued—most notably the Financial Institutions Reform, Recovery and Enforcement Act of 1989—resulted in a dearth of available debt capital. That, in turn, drove a collapse in property values.

Penner's path toward CMBS began when he was part of the leadership team on the residential mortgage-backed securities desk at Morgan Stanley. He waded into the commercial real estate sector in 1989 when Signature Group, a Los Angeles outfit focused on filling the void of mortgage lending, turned to him to fund a credit line allowing it to leverage its investments.

Penner left Morgan Stanley and formed Magellan Financial. With backing from Cargill Financial, he funded a number of large loans that he sold as single-class, AA-rated bonds into Europe's floating-rate market.

Magellan also provided financing for Starwood Capital Group, which then was only starting to buy apartment properties from the RTC, and Concord Asset Management, which focused on the retail sector. In the latter case, the financing, a portfolio of non-callable, 10-year loans representing about 50 percent of the value of the collateral properties, was structured into bonds, which were rated by Standard & Poor's, and ultimately pooled and sold as part of Nomura Asset Securities Corp., 1994-MD1. Starwood's apartment investments eventually became the seed portfolio for Equity Residential.

In fact, the RTC issued a number of deals that could be considered precursors to CMBS. Those, however, were backed by distressed mortgages and RTC typically retained a stake in the transactions, so they were used more as a portfolio management tool as opposed to a financing mechanism.

The Modern REIT Industry is Born

In 1992, the first wave of property companies was being taken public as REITs. Among them were Kranzco Realty Trust, a Conshohocken, Pa., owner of retail centers led by the Kranzdorf family, and TriNet Corporate Realty Trust, a San Francisco owner of triple net-leased office and industrial properties led by Jay Shidler.

Kranzco faced the maturity of a substantial chunk of mortgage debt and was working with Smith Barney and PaineWebber on its initial public...


“The Weekly”

“The Weekly” is Commercial Real Estate Direct’s PDF newsletter, sent to subscribers every Friday morning. With over 100 news stories published on Commercial Real Estate Direct each week, “The Weekly” features the top stories in commercial real estate that industry participants need to know first. “The Weekly” also contains:

  • Breaking mortgage, CMBS, and REIT news

  • Quarterly league tables with rankings of B-piece buyers, book runners, and lenders

  • Industry moves and changes in “The Insider“

Data Digest







Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44




cppichart FP



CMBS 2.0 Spreads


Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41





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