Winter may have sent its first blast of the season across the country this past week, but a thaw seems to be settling into the CMBS market. Not only did the third CMBS deal in the past month - indeed the past two years - price this past week, but news of more deals in the offing surfaced as well. Yet, so too did concerns about long-dormant issues associated with past CMBS deals.

Earlier this week, the $500 million senior portion of a $625 million, 10-year JPMorgan loan to Inland Western Retail Real Estate Trust Inc. went to market. The non-TALF eligible commercial mortgage-backed securitization backed by 55 retail properties produced strong demand. With a loan-to-value of 59%, the blended yield on the deal was 6%.

While the market appears to view the JPMorgan/Inland deal as the last true CMBS that will be sold this year, there is another commercial mortgaged back deal that likely may continue the thaw, and more in the works for early next year.

CVS/Caremark is coming out with a $744.9 million credit tenant lease bond offering backed by 166 first-priority lien commercial mortgages. The loans will be secured mostly by newly constructed drug stores in 34 states and related realty that will be triple-net leased to subsidiaries of CVS/Caremark Corp. The loans mature in January 2032. Wells Fargo Bank Northwest is the trustee and Barclays Capital is the underwriter.

In other news, Bridger Commercial Funding said it has resumed originating new commercial real estate loans on income-producing properties. The San Francisco-based firm's goal is to issue a multi-borrower, TALF-eligible CMBS deal before the federal program expires in June. Bridger's new program could be the first next generation multi-borrower CMBS loan program initiated since the onset of the credit crisis in early 2008.

"Recent activity in the CMBS market is signaling that the credit logjam plaguing commercial real estate lending for the past two years is starting to break," said Peter Grabell, Bridger executive vice president. "CMBS bond yields have fallen throughout the year, to the point where newly originated CMBS loans are becoming a viable financing option once again for borrowers."

"This thaw in the credit freeze that has enveloped commercial real estate for two years finally gives bankers and borrowers the prospect of recapitalizing properties," Grabell said. "Now is an opportune time to review loan portfolios to identify properties that are potential CMBS financing candidates."

The recent spate of activity and quiet sourcing of deals going on is "an acknowledgment by Wall Street that the market has either bottomed or is close enough to doing so that the risk of falling values further eroding LTV cushions is now mostly passed, at least for good assets, with good sponsorship and tenancy," said Gabriel Silverstein, president of Angelic Real Estate in New York, NY.

"My personal prediction from here is not only that the longer term 7- and 10-year money will come back to the one-off CMBS market quickly but that this will also encourage the insurance companies, currently the best but very selective non-recourse lenders in the market, to amp up their own lending at higher LTVs on non-recourse debt, and to move more quickly from application to closing," Silverstein added. "I don't see this moving cap rates down per se, but certainly it will help stabilize them, and the resulting increased transaction volume will in turn help price discovery and transparency, and that is what many of the large stable and value-add institutional investors have been holding out for before they re-enter the market."

While the recent transactions are a step in the right direction toward re-starting the debt market, there remains a long way to go, other CMBS participants say.

"In order to return to the market some sense of normalcy, three things must happen," J. Adam Rothstein, a partner in the Real Estate Department of Honigman Miller Schwartz and Cohn LLP, a law firm in Bloomfield Hills, MI. First, "the investors known as the 'B piece buyers' must get off the sidelines -- the recent deals involve mostly AAA-rated debt that is purchased by institutions seeking stable, unspectacular returns with low risk. What previously drove the market was a small group of investors who were willing to take that first risk of default in exchange for some outsized returns. Until those investors return to the market, the CMBS market will not return to the 'old' normal."

Second, Rothstein said, "loans must be made to borrowers that are not necessarily backed by firms with strong balance sheets. The small amount of current real estate lending activity involves borrower sponsors with strong balance sheets. Unlike in the past when the perceived value of specific assets played a central role, asset value now appears immaterial. We need to restore that part of the analysis, where specific properties can be counted on for some specified value and loans will be made on that value."

And lastly, Rothstein said, "loan to value ratios must move closer to 75% from the 50%-65% range presently in place. Most borrowers will be forced by low loan-to-value ratios to raise substantial equity in order to pay off existing debt. Raising equity for real estate in this economic environment is a long shot. Without higher loan to value ratios, the market will not return."

In its monthly commentary to investors Annaly Capital Management Inc. argued that CMBS investors still have serious concerns on multi-borrower deals.

"The credit crisis exposed many faults in the CMBS machine including aggressive and shoddy underwriting by originators, lax approval and oversight by the rating agencies, and non-alignment of interests between senior certificate holders and special servicers," the company wrote. "However the one fundamental flaw to the entire process was that no one had any 'skin-in-the-game,' or ongoing financial interest. The most subordinate investor with real equity, or B-piece buyer, not the mortgage originator, decided what collateral would ultimately be securitized."

Unfortunately, proposed reforms in the still-being-debated Financial Stability Improvement Act of 2009 bill requiring issuers/originators to retain any interest in their deals have been removed from the current version.

"Unfortunately, this modification, coupled with renewed investor appetite for risk, will likely again prove to be the undoing of the revived CMBS market," Annaly Capital Management wrote. "All of the major contributors to the mortgage origination process will be incentivized to do larger volumes with weaker investor protections. Their reward for success is short-term, while the assets they create are long term. Wouldn't it be best if the underwriter/originator/sponsor stayed along for the ride?"

How the debate over financial reform plays out is still unknown, but the mere fact that the market is again having the debate could yet still be considered another sign the credit markets may be thawing.