CMBS Risk Retention

What is CMBS Risk Retention and why should I care as a Borrower?

by Rob Seidenwurm

What is CMBS Risk Retention and why should I care as a Borrower?

For years, CMBS loan securitization follow the same process.  Lenders originate the loans, package them up, securitize them, and sell them to Wall Street.  Then they move on to the next deal.

In an effort to incentivize CMBS originators to make quality loans, new regulations are taking effect called “Risk Retention” requiring originators to retain 5% of the interest in the securitization.  The rationale is make sure originators put their money where their mouth is.

Why does this matter to Borrowers?  Because the new regulations are having the effect of driving many originators out of the CMBS market entirely.  In the first half of 2016 CMBS origination is down 43%, from $54.5 Billion to $30.7 Billion.  Less competition means: 1) It may be harder to successfully refinance; and 2) Rates are trending up.

Bottom line, if you have a CMBS loan that is coming due… best to plan ahead.