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With the commercial mortgage-backed securities (CMBS) universe and the broader commercial real estate (CRE) market seeing considerable distress in recent months, we looked through previous regulatory changes in periods of financial distress, specifically Risk Retention.
With the commercial mortgage-backed securities (CMBS) universe and the broader commercial real estate (CRE) market seeing considerable distress in recent months, we looked through previous regulatory changes in periods of financial distress, specifically Risk Retention.
The CMBS industry is still trying to figure out how it will deal with pending risk-retention rules that go into effect on December 24th. One of the methods of dealing with the regulation centers around proposed legislation aimed to soften the rules' impact on the sector appears.
The CMBS sector has placed a stronger emphasis on underwriting standards ever since the Dodd-Frank risk retention requirements came into effect. Although new deals typically feature less leverage and higher DSCR levels, are more transactions being “barbelled” with loans of differing credit quality?
With the commercial mortgage-backed securities (CMBS) universe and the broader commercial real estate (CRE) market seeing considerable distress in recent months, we looked through previous regulatory changes in periods of financial distress, specifically Risk Retention.
The pending regulation that is the biggest issue hanging over the market right now is risk retention. Starting in late 2016, CMBS issuers will have to retain a 5% slice of every new deal they issue, or designate a B-piece buyer to take on that risk.
Risk retention requirements that go into effect on December 24th have CMBS professionals on edge, and that's understandable. Issuers or their nominees will have to retain a risk piece of every CMBS transaction, equal to 5% of the deal's market value.
About 44.6% of Q1 issuance adopted the horizontal structure, while 32.8% of the balance was securitized under the vertical risk retention option. Two loans comprising 22.7% of the issuance total employed the L-shaped strategy.
The CMBS market is almost five full months into the risk retention era. Implemented as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the regulation's impact on the market has already been profound.
To test the impact of the Dodd-Frank risk retention rule on the commercial real estate market, we examine various individual loan risk metrics: • Observable ex post default performance. • Changes in loan origination spreads to see the whether the risk retention regulation is reflected loan pricing.