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3REsourceSummer2013byChristopherB.PriceandMarkJ.LochiattoAtitspeakin2007priortothemeltdownof2008themarketforcommercialmortgage-backedsecuritiesCMBSwasfundingmorethan40ofcommercialrealestatemortgagelendingintheUnitedStatesincludingmorethan200billioninthatyearalone.Asloansfromthepre-meltdownperiodwhichisoftenreferredtoasCMBS1.0begintoreachmaturitytherewillbesignicantandincreasingdemandbyborrowersforrenancingproceeds.AresethealthyandgrowingCMBSmarketwillbeimportanttoaddressthisborrowerdemand.WilltheCMBSmarketinitscurrentcongurationi.e.CMBS2.0continuetogrowandavoidtheexcessesofCMBS1.0Thisgrowthwillbecriticalforcontinuedimprove-mentoftherealestatemarketgenerally.So-calledconduitlendersintheCMBSmarketoriginatemortgageloanstoborrowersthatarethenbundledandcarvedupintomultiplelevelsortranchesofdebtforwhichpublicandprivatesecuritiesareissuedandsoldtoinvestors.Asignicantamountoftheblameforthe2008marketmeltdownwasplacedwiththeCMBSmarket.Laxunderwritingresultedinexcessivefrothwhichallowedoriginatorstoreceiveoriginationfeesandthenpassalongrisktotheinvestors.AcomparisonofCMBS1.0andCMBS2.0reectsthevariousattemptsinthemarkettobetteralignriskspromotegrowthofconduitlendingandavoidtheexcessesofCMBS1.0allofwhichwillaecttheabilityofborrowerstotapintothemarket.Changesincludemorestringentunderwritingandrevisedborrowerandloandocumentationrequirementsaswellasincreasedregulatoryoversight.MoreStringentUnderwritingMoreconservativeunder-writingisakeyfeatureofCMBS2.0.Thetablebelowprovidesacomparisonoftypicalunder-writingstandardsunderCMBS1.0versusthoseunderCMBS2.0thedatainthetabledonotreectvariationsattributabletopropertytypesandmarkets.CMBS2.0incomparisontoCMBS1.0generallyreectssignicantlylowerloan-to-valueratiosLTVhigherdebtservicecoverageratiosDSCRandfewerloansthatareinterestonlywithoutanyprincipalamortization.ThedebtCMBS1.0CMBS2.0LoantoValueRatioOftenExceeding8080orlessDebtServiceCoverageRatio1.05x1.25xorgreaterInterestOnly55.59.3DebtYieldNA10-12CMBS2.0vs.CMBS1.0InadditiontofacingmorestringentunderwritingsponsorsofborrowersofCMBS2.0debtwillfaceexpandedrecourseobligationsundernon-recoursecarveoutguaranties.Thelistofso-calledbadactsthatcouldtriggerliabilityundernon-recoursecarveoutguarantieshasbeenexpandedfromwhatwasseeninCMBS1.0.