Capital for investment in real estate debt and equity is anticipated to be plentiful in 2019, according to panelists at the MBA CREF/Multifamily Housing Convention & Expo held in San Diego this week. But the abundance of capital is creating intense competition.
CMBS lenders will likely continue to struggle competitively as community/regional banks and life companies continue to take market share. CMBS has already lost its multifamily edge to Fannie Mae and Freddie Mac multifamily offerings. All three competitors are encroaching on Class B properties and tertiary markets, traditionally bread-and-butter areas for CMBS.
CMBS can fight back by offering higher leverage, but CMBS lenders are being squeezed by the buyers of the subordinate CMBS securities (b-buyers). The b-buyers do not want to see leverage increased. However, if CMBS continues to lose market share, the b-buyers will have fewer offerings to invest in, and they will eventually capitulate to some level of higher leverage. In the meantime, CMBS can hold its ground by being one of the few avenues that offers partial-term and full-term interest-only payment structures.