Links, articles and resources
Page on REITs
In view of persistent requests, we have added a page on REITs as well – click here
Updated: 15th Jan 2002
See our news page here for market activity for year 2001 and expectations for year 2002.
Updated: Oct 11, 2001
This page was comprehensively revised and updated.
Added 3rd April, 2000:
According to a report in Wall Street Journal CMBS are losing their lustre – see the news report.
Added 1st Feb., 2000:
Data about 1999 CMBS issues was added to the news page : click here to visit.
Securitisation of commercial mortgages is one of the earliest applications of securitisation, next only to residential mortgage securitisation. Commercial mortgage-backed securities (CMBS) are bonds or other debt instruments secured by commercial real estate, as opposed to residential real estate. Commercial property means property let out or managed for economic benefit as opposed to that for self-occupation, and includes multi-family dwelling units (apartments or condominiums), retail centers, hotels, restaurants, hospitals, warehouses, and office buildings.
In generic sense, CMBS also includes securitisation of real estate leases.
The history of CMBS market lies in the failure of the savings and loans associations (or thrifts) in the USA when the assets of the latter were taken over by Resolution Trust Corporation, which made the first securitisation issue of multifamily mortgages in August 1991. By July 1993, the Corporation had issued close to USD 14 billion worth performing mortgage assets.
In later years, inspite of The Resolution Trust issues dissipating, the CMBS market has retained its vigour. In 1993, about 80% of the total of the CMBS market was shared by private issuers.
The role of the RTC in promoting commercial mortgage securitisation is laudable and comparable to specialised federal agencies such as FNMA, GNMA, etc.
One of the significant attributes of CMBS as against RMBS is the lower degree of prepayment risk since most commercial mortgages are for a fixed term. Therefore, the credit attributes of the underlying portfolio are more significant.
The CMBS market grew unidirectionally upto 1998. From a volume of USD USD 6 billion in 1990, it reached USD 78.4 billion in 1998. Most of the mortgage securitization was emerging from conduits – entities who would buy mortgage loans and securitise them with arbitrage profits, which were available in plenty owing to the very fine spreads prevailing in the market.
However, Oct 1998 was the defining line. By this time, investors had already burnt fingers in Russia and South East Asia which led to widening of spreads. A 1998-9 CMBS report by Ernst and Young said: " Just when we thought we had achieved liquidity in commercial mortgage finance, the Commercial Mortgaged – Backed Securities (CMBS) market abruptly stalled: borrowers suddenly couldn’t find financing, investors took significant losses and originators started writing resumes. The market this year was reminiscent of the scene in The Wizard of Oz when all the Munchkins are singing and dancing and then the Wicked Witch appears in a cloud of smoke to ruin the party."
In year 1999 and 2000, CMBS volumes continued to slide: USD 67.8 billion in 1999 and USD 60.9 billion in 2000.
However, the first half of 2001 has agains been rosy: the volume in the first half has been USD 32.6 billion which compares with USD 20.9 billion for the same period last year.
On 11st Sept. 2001 the CMBS market faced a very critical challenge. Terrorists flew planes in the World Trade Center in the USA causing the center to collapse. More than USD 1 billion of securitisation money had gone into the funding of the WTC – see our news reports –here and here. Most rating agencies have expressed the confidence that there will be no consequential impact on the CMBS market directly.