The public market growth for commercial real estate securities, whether in debt or equity form, will continue, observes David Jacob, a managing director and head of real estate research at Nomura Securities International Inc. Not because Wall Street wants it to happen, but because the efficiencies of the public markets benefit the widest audience of participants.

Apparently, the commercial real estate securities markets are running on all cylinders as dealmaking continues at a frantic pace. The volume of commercial real estate debt offerings in the form of commercial mortgage-backed securities, and of equity offerings, as defined by real estate investment trusts, has been on somewhat of a marathon run. Volume last year for CMBS reached a record $30.5 billion, while the REIT sector boasted a record 225 offerings, raising $17.5 billion, just under the record $18.3 billion set in 1993.

And the pace has not let up through the first part of 1997. Through the first four months of this year, the REIT market pushed 109 issues through the door raising $9.1 billion. Meanwhile, first quarter CMBS volume has been red hot, although slightly under last yearOs record pace. Through the first quarter, CMBS tallied $6.2 billion worth of deals which was short of last yearOs blistering first quarter mark of $7.4 billion, as reported by Commercial Mortgage Alert, the Newark, N.J.-based industry newsletter.

OItOs going to be a fabulous year for both debt and equity,O says Richard Carlson, national managing director for Real Estate Services at Deloitte & Touche in Chicago. OThere is a tremendous amount of capital interested in public real estate securities.O

This is not to say there arenOt concerns. Spreads have narrowed significantly on CMBS issues while REIT returns have been lackluster. There are also general worries about the quality of issues and if the mad rush of capital being thrown at the commercial real estate securities market means careful scrutiny has been tossed aside.

For the first time in a lot of years we are starting to have discussions again about whether or not the industry really discovered the discipline we thought would happen after the debacle of the 1980s and early-1990s,O Carlson notes. OAnd there is still a lot of debate whether we have developed that discipline.O

If anything, the first half of 1997 has proven that the commercial real estate market is adaptive and in many regards the texture of the individual debt and equity components are quite different from just three years ago. CMBS deals have grown larger, conduits are more important than ever and issuer teamwork is quickly supplanting the single loan issuer as the prime mover of the market. On the equity side, REITs have figured out how to leverage acquisition activity by buying into operating companies or forming deals with corporate owners of real estates. So far this year, the commercial real estate securities markets skipped past the spike in interest rates barely stopping to catch its breath, and has taken hold of the coattails flapping from the second quarter bull run. If nothing else, commercial real estate securities spread the risk for those who fear the mighty Wall Street bull will finally trip and fall.

Commercial Mortgage-Backed Securities CIBC Wood Gundy Securities of New York maintains a pretty good niche business doing construction loans, acquisition financing and bridge and permanent loans. The company does a lot of repeat business having built up numerous relationship with developers and owners over the past years. This year will mark a change for CIBC as much of those loans will be securitized. The company established a conduit program ORight now we hold permanent loans, but the securitization market allows us to exit them at any time,O reports Michael Higgins, a managing director at CIBC. Presently, the company is in an accumulation phase and expects to do its first issuance at the end of the year. The growing number of players on the conduit side of the CMBS market testifies to the shift going on in the industry. Back in 1993, conduits represented only 3.6 percent of CMBS volume, but those numbers have climbing steadily. In 1993, conduits totaled $2.7 billion grabbing 13.3 percent of the overall CMBS volume. By the next year, conduits totaled $4.4 billion and 23.4 percent. Last year was the great leap forward as conduits jumped to $10.2 billion and 33.5 percent. In the residential markets, about 60 percent of all loans are now securitized.

As a comparison, only about 10 percent of all commercial real estate loans are securitized.

But, as NomuraOs Commercial Real Estate Quarterly points out, residential also started slowly in the early 1970s and in fact the securitization of commercial mortgages closely tracks the historical pattern of the residential mortgage market. Can commercial attain the same percentage of securitization as residential mortgages? At least one company doesnOt think so. LaSalle AdvisorOs Investment Strategy Annual 1997 reports CMBS will finance an increasing share of the market. However, because of the heterogeneous nature of commercial real estate, securitization will not reach the levels found in the home mortgage market.

Total CMBS issuance It was running slightly behind last year, conduit deals through the first quarter are actually outpacing non-conduit transactions. In 1996, conduits in the first quarter totaled $2 billion or 27.7 percent of the total, but this year the conduits jumped to $2.5 billion or 41.1 percent of total, reports Commercial Mortgage Alert.

In the past, a conduit was basically an alliance between an originator and Wall Street, where the latter would buy loans at pre-arranged terms. While the process is still basically the same, the lines of what is a conduit have been blurred, explains Tom Ferris, editor of Commercial Mortgage Alert, as investment banks such as Nomura and commercial banks such as NationsBank originate their own loans.

TransAtlantic Capital Co., for example, was formed at the end of last year to originate and securitize commercial and multifamily loans for Deutsche Bank North America, the holding company that coordinates North American activities of Deutsche Bank and Deutsche Morgan Grenfell. Like CIBC, the company expects to do its first issuance at the end of this year.

Things have been going quicker than we expected,O says Jim Howard, managing director of the New York-based firm.

Deal flow ramped Up very quickly. We are seeing the transactions and having an opportunity to bid which is what we wanted to accomplish.O While there are continually new players coming into the conduit arena, that market has undergone a fundamental change. The deals are getting bigger and individual players are teaming up to come to market with bigger offerings. NomuraOs latest small loan securitization was a $1.4 billion deal completed last March, but that single issuer deal has become somewhat of an anomaly, as big CMBS deals are now mostly a result of multi-issuer transactions. In May, Lehman Brothers and First Union got together to do the largest joint securitization, a $1.3 billion conduit issue. Through the spring and summer another $6 billion of joint securitizations should hit the market. Among them are a $850 million Merrill Lynch, Daiwa Securities and GE Capital deal, and a whopping a $1.86 billion Credit Suisse First Boston and Goldman Sachs-Amresco. Umpteen tickets bought the pawnbrokers, although Last year was the great leap forward as conduits jumped to $10.2 billion and 33.5 percent. In the residential markets, about 60 percent of all loans are now securitized.

As a comparison, only about 10 percent of all commercial real estate loans are securitized. But, as NomuraOs Commercial Real Estate Quarterly points out, residential also started slowly in the early 1970s and in fact the securitization of commercial mortgages closely tracks the historical pattern of the residential mortgage market. Can commercial attain the same percentage of securitization as residential mortgages? At least one company doesnOt think so. LaSalle AdvisorOs Investment Strategy Annual 1997 reports CMBS will finance an increasing share of the market. However, because of the heterogeneous nature of commercial real estate, securitization will not reach the levels found in the home mortgage market

Total CMBS issuance It was running slightly behind last year, conduit deals through the first quarter are actually outpacing non-conduit transactions. In 1996, conduits in the first quarter totaled $2 billion or 27.7 percent of the total, but this year the conduits jumped to $2.5 billion or 41.1 percent of total, reports Commercial Mortgage Alert. In the past, a conduit was basically an alliance between an originator and Wall Street, where the latter would buy loans at pre-arranged terms. While the process is still basically the same, the lines of what is a conduit have been blurred, explains Tom Ferris, editor of Commercial Mortgage Alert, as investment banks such as Nomura and commercial banks such as NationsBank originate their own loans.

TransAtlantic Capital Co., for example, was formed at the end of last year to originate and securitize commercial and multifamily loans for Deutsche Bank North America, the holding company that coordinates North American activities of Deutsche Bank and Deutsche Morgan Grenfell. Like CIBC, the company expects to do its first issuance at the end of this year. OThings have been going quicker than we expected,O says Jim Howard, managing director of the New York-based firm.

Deal flow ramped Up very quickly. We are seeing the transactions and having an opportunity to bid which is what we wanted to accomplish.O While there are continually new players coming into the conduit arena, that market has undergone a fundamental change. The deals are getting bigger and individual players are teaming up to come to market with bigger offerings. NomuraOs latest small loan securitization was a $1.4 billion deal completed last March, but that single issuer deal has become somewhat of an anomaly, as big CMBS deals are now mostly a result of multi-issuer transactions. In May, Lehman Brothers and First Union got together to do the largest joint securitization, a $1.3 billion conduit issue. Through the spring and summer another $6 billion of joint securitizations should hit the market. Among them are a $850 million Merrill Lynch, Daiwa Securities and GE Capital deal, and a whopping a $1.86 billion Credit Suisse First Boston and Goldman Sachs-Amresco. Umpteen tickets bought the pawnbrokers, although Last year was the great leap forward as conduits jumped to $10.2 billion and 33.5 percent. In the residential markets, about 60 percent of all loans are now securitized. As a comparison, only about 10 percent of all commercial real estate loans are securitized. But, as NomuraOs

CommercialReal Estate Quarterly points out, residential also started slowly in the early 1970s and in fact the securitization of commercial mortgages closely tracks the historical pattern of the residential mortgage market. Can commercial attain the same percentage of securitization as residential mortgages? At least one company doesnOt think so. LaSalle AdvisorOs Investment Strategy Annual 1997 reports CMBS will finance an increasing share of the market. However, because of the heterogeneous nature of commercial rea l estate, securitization will not reach the levels found in the home.

Total CMBS issuance It was running slightly behind last year, conduit deals through the first quarter are actually outpacing non-conduit transactions. In 1996, conduits in the first quarter totaled $2 billion or 27.7 percent of the total, but this year the conduits jumped to $2.5 billion or 41.1 percent of total, reports Commercial Mortgage Alert. In the past, a conduit was basically an alliance between an originator and Wall Street, where the latter would buy loans at pre-arranged terms.to $10.2 billion and 33.5 percent..