With each passing month, the CMBS market gets closer to being a viable multifamily execution.

Berkadia and Walker & Dunlop recently opened their CMBS platforms, KeyBank and Marcus & Millichap closed their first CMBS loans in ages, plus several encouraging signs are gathering for the sector. 

Spreads continue to contract for CMBS loans, improving between 20 and 30 basis points (bps) in each of the three CMBS issuances between Oct. 1 and mid-November. That’s a significant movement, and it’s helping to close the pricing gap with the government-sponsored enterprises (GSEs).

Still, most CMBS loans are about 75 bps over a Fannie Mae or Freddie Mac execution on the all-in rate. But the pricing trend is heading in the right direction for the CMBS industry. “We’ve seen spread compression, and the CMBS bonds have sold well, which bodes well for the return of the product,” says Clay Sublett, national production manager and CMBS director for Cleveland-based KeyBank Real Estate Capital. “I think we’ll continue to see some continued creep of spread, but will it get to the point that CMBS will compete with the agencies? In the near term, probably not.”

KeyBank closed a CMBS deal for a single-tenant retail asset in Mid-November, which featured an all-in rate of 5.75 percent. It was the first CMBS loan the bank had closed since the first quarter of 2008.

Like KeyBank, Berkadia and Walker & Dunlop will also go down to $5 million, which is a competitive advantage in a marketplace where many of the major players won’t consider deals below $10 million. Established players including Goldman Sachs, JPMorgan, Deutsche Bank, Morgan Stanley, and Citibank have also been in the market but aren’t winning much, if any, multifamily deals.

Still, the sector is growing more creative to try and win apartment business. While many CMBS lenders were maxing out at 70 percent loan-to-value (LTV) this year, recently some have begun to go up to 75 percent.

“Not only are we seeing CMBS lenders be more active, but they’re starting to be more aggressive in the marketplace,” says Bill Hughes, managing director of Encino, Calif.-based Marcus & Millichap Capital Corp. “They’re not willing to compete with rate, but one of the ways they are competing is with some additional dollars.”

Or consider Bridger Commercial Funding, which recently added a mezzanine program to its CMBS platform through a relationship with New York Mortgage Trust. The program, which offers mezz loans of between $500,000 and $5 million, is only available on deals where Bridger originates the senior CMBS loan. Bridger’s program will go up to 85 percent of value for multifamily properties, but only 80 percent for every other asset class.

Opening Shop
The growing investor confidence in the space has also inspired lenders that specialize in agency executions to open their own platforms.

Berkadia has set aside about $200 million to start its conduit program, focused on-fixed rate loans between $5 million and $25 million for stabilized properties. The company will start accepting applications at the beginning of 2011, and the effort will be led by Joseph Franzetti, formerly with Cohen Financial. 

Like all CMBS lenders, the company doesn’t expect to win much multifamily next year. But the program diversifies the company’s menu of options and will be ready to go whenever the CMBS industry finds itself able to effectively compete with the GSEs.

“You need to differentiate yourself to the borrower; there are many Fannie, Freddie, and HUD lenders out there,” says John Cannon, executive vice president of Horsham, Pa.-based Berkadia.  “And that means offering other executions, whether it’s life insurance company executions, proprietary conduit, broker conduit loans, and proprietary floaters.”

Walker & Dunlop also recently began marketing its conduit program. The effort is led by Vic Clark, a CMBS veteran formerly with Column Financial. The company is working with Cantor Fitzgerald on the platform. Walker & Dunlop will underwrite and close the loans but not service them. Another agency lender, CWCapital, is exploring opening its conduit line next year.

Meanwhile, Marcus & Millichap Capital Corp. closed its first CMBS loan of the year in early November, a  $13.3 million 10-year cash-out refinance on a medical office building in Marina Del Rey, Calif. The loan had a 75 percent LTV and an all-in fixed rate of 5.58 percent.

“Typically this year, the CMBS lenders have been unavailable to us,” Hughes says. “The deals that were done were direct deals and not available to the general real estate community. But I believe that source will become much more available to all of us next year.”