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The loans behind Maui Prince were financed by commercial mortgage-backed securities, or CMBS. The resort’s failure reflects the troubled market for these bonds, which are backed by a pool of mortgages on commercial properties. The market for CMBS is one leg of the stool supporting the commercial real estate sector, providing a vital source of funding for mortgages on hotels, offices, shopping malls and other business properties. And as we’ve been saying a lot of late, that stool is collapsing.
The CMBS market has yet to revive after seizing up last year. In 2007, sales of commercial mortgage-backed debt rose to roughly $240 billion and accounted for nearly half of all commercial lending. Today, sales of CMBS have sunk to just over $12 billion.
