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European CMBS: Chips with everything

The recent explosive growth in European CMBS is the fruit of years of investment in the product by many banks. But do these institutions now find their hands tied by the need to feed the machine that they have created? Louise Bowman reports.

A grand month for CMBS (August 2006)

Cross-border real estate investment set to grow (May 2006)

What's the buzz in German NPLs? (November 2005)

Europe’s real estate revolution (September 2006)

When UK supermarket J Sainsbury and toy retailer Toys R Us recently decided to introduce new lines, clearing shelf space close to the checkouts wasn’t quite going to do the trick. This is because those new lines were their own commercial property. But these were no vanilla sale leaseback trades, they were demonstrations of the transformative effect that the rise in real estate values, together with rapid innovation in the ways in which they can be exploited, are having on balance sheets across Europe.

In January, Toys R Us, a triple-C rated company, was able to issue triple-A rated bonds via a single-tenant CMBS structure – backed by a loan to its UK subsidiary. And Sainsbury’s secured refinancing of half of its property portfolio in April was the most direct exploitation of property assets to create funding efficiency since the landmark Land Securities Capital Markets (LSCM) deal in late 2003. Both of these deals were examples of opco/propco structures, whereby the operational and property assets of the business are separated in order to best exploit the value of the latter and achieve higher leverage.

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