CMBS 2.0 conduits ‘very chunky’

The conduits in the next wave of commercial mortgage-backed securities are “very chunky” and require close analysis, according to Moody’s Investors Service. Analysts said underwriting standards have improved in the eight, new generation conduit deals Moody’s has rated, and the credit metrics of CMBS 2.0 are trending similar to those of the loans that came to market around 2004. Loan origination during the issuance of CMBS 1.0, roughly 2004 through 2007, “meant stretching for additional income from properties already opening at the zenith of their existence.” “In today’s market, underwriting from properties beaten up by the recession may involve trying to get closer to normalized income,” Moody’s said. Analysts expect conduit leverage to climb to loan-to-value ratios in the mid-70s sooner rather than later due to a highly competitive market. “We are currently in a favorable position in the commercial real estate credit cycle,” Moody’s said. “Construction pipelines have largely emptied out and the absorption is starting to pick up as the economy recovers.” Find out more about the market for CMBS 2.0 in the May edition of HousingWire magazine. Write to Jason Philyaw.