Demand On the Rise For Risk Professionals With Expertise in Commercial Mortgage-Backed Securities
Despite gloom and doom in the U.S. housing market, commercial real estate deals were surprisingly strong in the second quarter and experts predict this trend is likely to continue. The commercial real estate sector is benefiting from strong fundamental economic activity such as an increase in industrial production, shipments of durable goods and wholesale trade, says Lawrence Yun, Senior Economist for the National Association of Realtors. A new study, however, suggests that the issuance of new commercial mortgage-backed securities is slowing amid a dramatic shift in investors, perceptions of risk. Now, executive recruiting firm, A.E. Feldman reports that demand for credit and market risk professionals with experience in mortgage products, specifically commercial mortgage-backed securities is on the rise. Carol Schwam, the firm’s CEO, says “There is a strong and growing need for qualified candidates in risk management and securitization.”
The NAR reports that its commercial leading indicator for brokerage activity, a forward-looking index that uses 13 economic factors to gauge commercial real estate brokerage prospects, posted its ninth consecutive quarterly advance in the second quarter. The index rose 0.5% to 120.7, the highest level in its 17-year history. The Federal Reserve’s “Beige Book” issued this week found that the only bright spot in real estate is the commercial side of the business. Commercial real estate, including sales, leasing and construction, was busy across the West. The Fed also observed that “lending activity for commercial real estate projects continued at very high levels.”
The commercial real estate market is being driven by different economic factors than the housing industry, especially the subprime market, Sandler O’Neill & Partners analyst Kevin P. Fitzsimmons told Forbes. Fitzsimmons contends that commercial lending is not suffering the same type of falloff as residential and most of the commercial backed mortgage securities can be sold to Fannie Mae and Freddie Mac. €œSo you have a willing buyer at the end,€ he said.
Lenders securitize loans as commercial mortgage-backed securities (CMBS) and sell them to institutions. The National Association of Realtors (NAR) says these securities backed by the principal and interest payments of a set of commercial mortgage loans have become a standard in balanced fixed income investment portfolios. As of the second quarter this year, U.S. CMBS issuance stands at $137.0 billion, 54.2% ahead of last year’s record pace, according to the NAR. In the first quarter, $804 billion or 27% of the $3.0 trillion of U.S. multifamily and commercial mortgage loans outstanding were held as securities. The group also reports that in recent years U.S. CMBS issuance has been robust, climbing 81% in 2005 and more than 20% in 2006.
But commercial real estate research firm, Reis, Inc suggests investors are pulling back from securities backed by mortgages of any kind. In its commercial mortgage-backed securities market update for the second quarter, Reis reports that the issuance of new commercial mortgage-backed securities is beginning to slow due to the market’s general reassessment of risk. Bond rating agencies have started lowering ratings on commercial mortgage backed securities and investors are requiring higher returns in order to compensate for the increased risk. According to Fitch Ratings’ latest U.S. CMBS loan delinquency index however, U.S. CMBS delinquency index fell for the sixth straight month in July 2007. The agency says the continued downward trend is due to a large drop in office and multifamily delinquencies.
Now, A.E. Feldman says credit, valuation jobs and opportunities for market risk professionals with experience in mortgage products, particularly commercial mortgage-backed securities, is on the rise. Qualified candidates will have experience in managing CMBS based risk, risk policy development, risk analysis and risk reporting as well as experience in measuring and monitoring both market and credit risk associated with complex real estate transactions.
