More than 1,400 investors, lenders, intermediaries and real estate executives packed this week’s CMBS Investors Conference in Boca Raton, Fla., setting a new attendance record for the Commercial Mortgage Securities Association’s twice-annual gathering.
It was a record-breaking conference for a record-breaking industry. Just days before the Jan. 8-10 event, market studies revealed CMBS volume in 2005 outstripped the previous year’s volume by more than 81%. CMBS issuance totaled $169.2 billion in 2005, up from the previous year’s $93.1 billion record volume, according to Commercial Mortgage Alert.
The high turnout and high volume are a testament to the acceptance and popularity of commercial mortgage backed securities as an investment option, says conference co-chair Larry Duggins, who is also president and COO of ARCap REIT Inc. “CMBS has become the preferred means to finance commercial real estate,” he says. “It’s efficient, delivers good value to investors, and it’s a well-accepted structured finance product.”
Indeed, the CMBS market has become so successful at attracting investment capital and boosting volume that some conference attendees voiced concerns about diminishing profit margins due to the intense competition to place loans. Duggins chalks shrinking margins up to the maturing of the CMBS market, and says tighter margins are the new norm. “As volumes get higher and executions become more efficient, excess margins that might have been in CMBS when it was younger are getting squeezed out,” he says.
Most conferees expressed expectations for another high-volume year in 2006. “Some people are concerned that there’s more leverage in the market than there has been historically, but the general mood is cautiously upbeat and optimistic,” says Brian Lancaster, head of structured products at Wachovia Securities, one of the nation’s largest CMBS servicers. Lancaster is also co-editor of the CMSA’s magazine, CMBS World.
Hot topics at the Florida conference included collateralized debt obligations or CDOs, which tripled in issuance last year to about $17 billion, Lancaster says. Another discussion drew lessons from the industry’s experiences in the aftermath of Hurricane Katrina, outlining flood insurance options and contingencies to guard against defaults following future disasters. “This is what the CMSA exists for,” Lancaster says. “When there’s some event that hits the industry, there are discussions and then people move forward with what they’ve learned.”
The next CMSA conference will be its annual convention, slated for June 12-14 in New York City.