Mele Storage Group Warns of Setback in CMBS market

June 12th, 2007

Marcus & Millichap’s Mele Storage Group is warning investors that the commercial mortgage-backed securities, or CMBS market is experiencing a minor setback. Problems in the sub-prime residential mortgage market are adversely impacting the commercial mortgage market. CMBS lenders are even seeing some of their aggressively underwritten loans being kicked out of loan pools as the spread requirements of the bond investors are increasing, according to a recent report from BridgePointe Advisors, a real estate investment banking boutique based in Alphretta, Ga.CMBS are securitizations of mortgage loans backed by commercial real estate. That makes CMBS similar to Mortgage Backed Securities (MBS), which are mortgage loans backed by residential loans. CMBS are not exactly a new financing phenomenon – it was created in the late 1980s – but this method has gained notable momentum in the self-storage industry. Essentially, CMBS are a means for investors to participate in the ownership of commercial mortgages. Apartment buildings, shopping or strip malls, office buildings, hotels, industrial buildings and self-storage, among other commercial property types, secure loans that serve as CMBS collateral.

“Some are calling the subprime problem the ‘elephant in the room’ and many investors are getting nervous about aggressive underwriting practices,” said Michael A. Mele, Senior Investment Associate at Marcus & Millichap’s Mele Storage Group. “This could be a blow to self-storage investors because the spreads had narrowed and CMBS was becoming an attractive long-term financing alternative.”

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Entry Filed under: Strategic Counseling, Crisis Communications