The Market for Securitized Commercial Mortgages

The market for CMBS has been subject to the various disruptions that have afflicted financial markets generally. The market tumult during the fall of 1998 caused several key participants to exit the market and caused credit-risk spreads to widen substantially, especially for non-investment-grade CMBS tranches. As a result, the growth of commercial mortgages in securitized mortgage pools has slackened, and the growth of loans on the books of traditional portfolio lenders--banks, thrifts, and insurance companies--has accelerated. Banks, in particular, have reported somewhat stronger demand for commercial real estate loans this year, at a time when they have tightened standards a bit for approving these loans. Other markets for securitized debt--including those for residential mortgages, home equity loans, and consumer loans--also have weakened of late, as have markets for belowinvestment-grade corporate bonds.

Despite the recent sluggish pace of issuance, CMBS remain an important source of financing. Most recently, CMBS have been the source of funding for 11 percent of multifamily mortgage debt and 15 percent of retail, office and other mortgage debt. At the end of the first quarter of 2000, the outstanding volume of CMBS issued by domestic sellers other than government-sponsored enterprises (GSEs) stood at $205 billion, with another $59 billion of multifamily mortgage debt securitized by GSEs.