Manatt Partner Comments on Conduit Financing Resurgence

Comeback Redux
– Commercial Property Executive

Manatt's Tom Muller, co-chair of the firm's Real Estate & Land Use Practice, spoke to Commercial Property Executive about the conduit financing resurgence that began in June 2012.

As reported by Commercial Property Executive, conduit lenders are increasingly showing eagerness to do deals, and are pursuing deals aggressively. This resurgence is driven by the demand for commercial mortgage-backed securities on the part of bond buyers. CMBS loan spreads have fallen to such a level that conduits can offer interest rates in the 3 to 4 percent range, which renders them competitive in the financing markets. There are as many as 30 conduit players currently in the market, and industry sources say the number remains relatively stable, with conduits of major big banks writing a huge volume of CMBS financing in the first quarter of 2013. But, given the strength of the securitization market, CMBS financing nevertheless remains disciplined, as lenders focus on quality assets in primary markets and scrutinize transactions.

Muller told the publication that some portions of the bond market may still be gun-shy about trusting the rating agencies. As a result, single issuances or issuances based on fewer properties are preferred, so the investors can more easily underwrite the loans themselves.