Real Insight. Real Estate.

This post has been contributed by Richard Weidel, a  Masters in Real Estate Investment Banking and Private Equity graduate student at Cornell University.

An interesting development is in the 11/6/2009 Commercial Mortgage Alert (CMA), headlined “JP Morgan Resumes CMBS Loan Program”. The article states that J.P. Morgan has restarted its conduit lending program, and plans to restart  securitization next year. With the debt markets still frozen, and a looming commercial debt maturity balloon coming in 2010-2011, new securitizations could offer much needed liquidity to a tight CRE market. While JP has indicated that it plans to only originate fairly conservative, fixed-rate loans for securitization, this could be the impetus needed to improve investor confidence in CRE and bring money back to the debt markets.

Interestingly, the following headline is “House Bill Seen Choking off CMBS Revival.” Apparently our elected officials don’t want to assist the return of CMBS. Congress is considering forcing CMBS lenders to retain 10% of the credit risk associated with the loans they originate. The thinking goes that if lenders are required to share in the risk of the loans that they make, then they will make less risky loans. According to CMA, when combined with accounting-rule changes under FAS 167 that take effect at year end, the proposed legislation would dramatically boost risk-based capital requirements for banks that run CMBS conduit platforms. The effect would most likely be that banks would be even more hesitant to return to the CMBS market. Not surprisingly, Rep. Barney Frank introduced the Bill. The bill represents an effort by Congress to keep banks from becoming too big to fail by requiring them to share in the risk and thus make safer and fewer loans. While it may be well intentioned, I worry that it may also be the final blow to the impending CRE debt market problems.

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