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CRE CDO: Collateral composition

by Angus Duncan, Cadwalader, Wickersham & Taft


The European CRE CDO market launched in December 2006 with BlackRock’s Anthracite Euro CRE CDO I, arranged by Morgan Stanley. Collateral constituted a range of commercial real estate assets, including CMBS, B notes, C notes and mezzanine loans. Structurally similar to the US CRE CDO model, the Anthracite transaction was the first in Europe to comprise a range of commercial property related assets and signified the birth of a market that it is hoped will grow in tandem with the CMBS market in Europe. The Anthracite deal was followed in January 2007 by Taberna’s first European CRE CDO, the collateral for which consisted mainly of European Reit debt, and which followed the model of Taberna’s Dekania series of CDOs.

The CMBS market in Europe has shown substantial growth in recent years, with total issuance in 2006 exceeding €60 billion. As the supply of CMBS and B notes grows, the scope for European CRE CDOs increases. Significant growth in Europe outside the anchor markets of the United Kingdom and Germany will aid diversity for CRE CDO issuance.

It is expected that 2007 will see several more CRE CDOs, ranging from deals following a CDO of ABS model to deals comprising a range of real estate assets, and those which include some residential mortgage-backed component.