Around this time last year, many conduit lenders were getting pretty excited.

The CMBS industry appeared to be back in full force, quoting rates that were competitive with Fannie Mae and Freddie Mac for the first time in years. Borrowers suddenly had more options, agency and balance-sheet lenders suddenly had more competition, and the industry as a whole was enticed by the prospect of more liquidity.

Yet, as soon as it came, it disappeared—rates came down too far, too fast, and investors pushed back. Then, capital markets shocks like the debt ceiling standoff and the Greek debt crisis continued to derail the CMBS industry’s momentum.

But now, through the first few months of 2012, CMBS pricing continues to fall.

Conduits are quoting rates in the high-4 percent range—not too far from where the government-sponsored enterprises (GSEs) are pricing. And a growing number of organizations, including Barclays, UBS, Cantor Fitzgerald, JPMorgan Chase, LoanCore and Guggenheim Partners are setting large CMBS budgets for the year and getting more aggressive with each passing day.

The question is, are we seeing just another head fake, or does this trend have staying power?

“It’s back, and it’s real. Competition is fierce; every shop is out there aggressively trying to win business,” says Vic Clark, a managing director with New York-based Centerline Capital Group. “I know we said this last year, but the difference now is the pricing has found its niche, the market is accepting this level of pricing, and investors are excited to be back.”

Bolstered by this momentum, Centerline Capital is looking to throw its hat into the ring, and is currently developing a proprietary CMBS execution.

“CMBS lending is a top goal of Centerline in 2012,” says Rob Levy, president of the Centerline Capital Group. “We are in discussions as we speak with the hope of having something in place by the end of the first quarter."

2.0 or 1.1?
As the CMBS market was re-emerging after the recession, many in the industry branded its second coming as “CMBS 2.0,” a title meant to convey that this time, things were different.

And it’s true, things are a bit different. The CMBS loans originated over the last couple of years have been characterized by very cautious underwriting—among the safest loans in the industry’s history. But has the market itself fundamentally changed, or is it just chastened, still trying to win back the trust of the investors?

“It’s more like CMBS 1.1,” says Hessam Nadji, managing director of research at Encino, Calif.-based Marcus & Millichap. “Investors are demanding really solid underwriting, higher quality assets, and in a lot of cases, the sponsor has kept some skin in the game. But frankly it hasn’t been a dramatic change.”

The CMBS industry won’t truly enter its next phase until all the regulations from the Dodd-Frank financial reform legislation are ironed out. But until then, the market is building on momentum and offering borrowers a growing menu of options.

Will that momentum build to a point where conduits are again giving the GSEs a run for their money?  “I’m not even sure if that’s the right way to look at it because the rates being offered by the GSEs right now are so good,” says Ben Thypin, a senior market analyst for New York-based Real Capital Analytics. “CMBS is lending on product the GSEs wouldn’t lend on—it may be pre-stabilized properties, or deals in secondary or tertiary markets.”

Still, the industry has once again come a long way in a short time. And the true health of the sector will be proven out in the next few months, as more securities come to market and test investor appetite. “All eyes are looking at the second quarter, because there’s something like $4 billion coming to market, and that’ll tell the tale,” says Clark.