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“Non-Recourse in the New World,” by Tom Jaros and Keith Ross, Published in Heartland Real Estate Business


March 17, 2011

Read Time

1 minute


By: Thomas Jaros and Keith Ross

During the commercial real estate run-up of the last decade most everyone dipped their toes into the non-recourse commercial real estate loan market. The longer term, lower rates, higher leverage, interest-only periods and generous amortization schedules were all too much to resist. On top of this, and this was the best part, these loans were non-recourse. If the deal ultimately failed, the borrower could simply hand over the keys to the lender without being liable if the property was worth less than the debt. While insurance companies, private lenders and even banks offered non-recourse products, the most available form of non-recourse loan in the past 10 years was offered by so-called CMBS lenders. While beyond the scope of this article, briefly stated CMBS, which stands for commercial mortgage-backed securities, was a complicated structure where the loans were originated for the purpose of pooling them together with other loans so that securities could be issued against the entire pool. The wide availability of CMBS financing helped drive cap rates lower and fuel a run-up in values. CMBS programs also allowed for more creative structures, like TIC deals, as well as bigger and bigger deals. At its height in 2007, the CRE Finance Council reports that $230 billion of commercial mortgage-backed securities were issued. Layer on top of that an additional $709 billion of CMBS that issued from 2000 to 2006 and you have almost $1,000,000,000,000 — that’s trillion — of non-recourse CMBS loans in the market.

Click here to read the full article from the March 2011 issue of Heartland Real Estate Business.

Filed under: Real Estate

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