Commercial Real Estate financing coming back

After two years of uncertainty and confusion prevailing in the financing activities in commercial real estate market, there is good news appearing in the financial analysis magazines. You cannot miss news headlines that bigwigs in financial lending are stepping into the market, although cautiously. Experts in the industry are optimistic that this is a good beginning to be followed by others, to make the recovery from the gloom possible.

For those who do not know, nearly half of the commercial property dealings were financed by mortgage backed securities till the crisis struck in 2007. The system worked this way – banks and financial institutions select commercial property dealings and issued suitable loans, after undergoing all the formalities related with them.

Then these loans as a total are bundled out in securities, and sold in the market for investment institutions individually. The sale proceeds of these bonds are again routed to the banks for further loans. Investors are guaranteed of their capital with interest through the mortgage based securities in their possession.

According to authentic statistics, nearly $230 billion worth of commercial mortgage-backed securities were in exchange prior to 2007. But as an after-effect of eroding property values, arising out of the mortgage crisis, new issues of these securities dwindled down to $12 billion in 2008 and nose-dived to a mere $3 million at the end of 2009.

Now experts point out as goods signs – J.P. Morgan Chase and Royal Bank of Scotland coming to the forefront, in investing sizeable money into commercial mortgage backed securities. While the former has ventured into single-borrower commercial property loan issuances to the tune of $716 million, secured by 36 loans on 96 commercial property assets, the later offered investment on security bonds worth $309.7 million covered by 6 loans on 81 assets in the recent months.

Analysts point out that the easing in this regard has become possible by the investors’ confidence, as underwriters follow stricter norms for issue of commercial loans, which were absent in 2007. Others to follow suit are reported to be Wells Fargo; Deutsche Bank and Morgan Stanly and similar other big and small institutions.

The expected outlay, according to analysts is over $10 billion in commercial mortgage backed securities before the end of this year.

Posted by Amitesh Kumar on Sep 8 2010. Filed under Market Updates. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry