Bloomberg News

Japan Plans CMBS Standards as Sellers Seek Post-Lehman Revival

November 08, 2011

Oct. 28 (Bloomberg) -- The Commercial Real Estate Finance Council in Japan plans to set a new standard for commercial mortgage bonds, aiming to revive a market that once supported the biggest property acquisitions in the nation.

The Tokyo-based council, whose members include Deutsche Bank AG and Mitsubishi UFJ Trust & Banking Corp., will focus on improving disclosure, documentation and the structure of commercial mortgage-backed securities loans, said Tokio Ueyama, head of commercial real estate at Deutsche Bank in Japan who is also co-chair of the industry group. The standard is expected to be completed as early as the end of the year, he said.

Bonds backed by commercial mortgages, known as CMBS, were used to finance $60 billion of properties in the three years ended March 2008, according to the Japanese Bankers Association. The annual volume dropped 80 percent in the fiscal year ended March 2009 after the collapse of Lehman Brothers Holdings Inc. in September 2008. A new standard may enable investors to understand CMBS better, allowing lenders to attract investment from institutional investors and pension funds.

“In the past, there was no fixed standard for structuring CMBS. Practice has differed from player to player,” said Tokyo- based Ueyama. “For those investors who are not familiar with CMBS, a standard would be helpful for them to consider such an investment.”

Some of the CMBS have limited information, which makes it harder for buyers to evaluate credit worthiness of those loans, said Ueyama.


In addition to prudent underwriting practices, the project team will discuss what works and what needs improving for CMBS products in Japan, said Takenari Yamamoto, an associate director at Standard & Poor’s and also co-chair of the council.

The $600 billion U.S. CMBS market has retooled the bonds with tighter underwriting standards and rules governing the oversight of troubled loans twice since the credit crisis.

“The new standard for Japan shouldn’t be too different from the U.S.,” said Yamamoto. “The philosophy behind it is quite the same.”

CMBS issuance in the U.S., which provided cheap debt financing that drove commercial real estate to record highs in 2007, fell by 90 percent to $23.2 billion in 2008, from $251.3 billion a year earlier, as credit markets froze, according to Bloomberg data.

New Standard

The new standard should also include better documentation that outlines a clear process for firms that recover loan principals and interests in the case of CMBS defaults, said Kiyokazu Ishinabe, executive director of the CMBS servicing group at Orix Asset Management & Loan Services Corp.

The group disposed of at least one property in four days on average since June 2008. Some delinquent loans were unresolved because the process for the consent of CMBS investors was not clear in some cases, Ishinabe said.

“If we can’t get the consent from investors, we can’t do anything,” he said. “A new standard hopefully will enable us to get approval from investors more easily, which will smooth the liquidation process.”

Still, reviving the CMBS market may be difficult because the cost of funding for lenders is higher and investors are more cautious after the global credit crisis, said Yukio Egawa, chief strategist and head of research at Shinsei Securities Co.

“After the Lehman shock, market participants have become more cautious and they would not prefer highly leveraged deals,” said Tokyo-based Egawa. “Also, Japanese banks are lending to the sector at a very attractive rate, so I am not optimistic at all.”

--Editors: Andreea Papuc, Linus Chua

To contact the reporters on this story: Kathleen Chu in Tokyo at; Katsuyo Kuwako in Tokyo at

To contact the editor responsible for this story: Andreea Papuc at

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