Northern California financing institutions are in the forefront of a financing innovation that has quietly swept into commercial real estate.
"Securitization" --- the selling of commercial mortgage-backed securities --- has grown to $35 billion a year. And the investment vehicle, used to liquidate bushels of commercial loans, is expected to grow to an annual $50 billion within five years, by the reckoning of Moody's Investors Service, Inc. That's phenomenal growth, considering the market for commercial-backed mortgage securities was virtually non-existent 10 years ago. "There really wasn't a need for commercial mortgage-backed securities in the '80's because you had banks and savings and loans falling all over themselves trying to loan money," said Joseph Cunningham, president of Liberty Mortgage Acceptance Corp., one of the entities that has made the north state perhaps second only to New York for securitization-origination.
"In the mid-80's, they did some transactions, but it never took off," added Majid Geramian, Moody's senior vice president in New York City. "The market dried up." Today, however, outstanding commercial mortgage-backed securities issuance totals about $1 trillion outstanding commercial mortgage debt --- and market analysts predict further growth. "It's become another source of commercial financing," Geramian said. Liquidity is a key, mavens say, and both financial institutions and investors are playing the game in increasing numbers. "The ability to securitize and sell loans is critical to ongoing flexibility and competitiveness in commercial real estate loan originations," said Helga Houston, a Bank of America senior vice president. Demand among investors for these securities is high, added Bill McGaughey, senior vice president and treasurer of Sierra West Bank in Sacramento.