Rare European CMBS deal prices

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By:
Rachel Wolcott
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Royal Bank of Scotland’s Vesteda Residential Funding II commercial mortgage-backed securitization has shown that there is appetite for high-quality paper from well-known issuers. The €150 million five-year deal, executed in July, is the only externally placed CMBS in Europe this year, according to RBS. The single tranche of AAA-rated bonds was priced at 100 basis points over three-month Euribor.

"There are investors out there who want to buy securitization product but are not entering the market for credit or fundamental reasons," says Damian Thompson, head of real estate finance securitization at RBS in London. "There is cash out there and investors want to put it to work."

Vesteda II, a tap issuance, was the kind of deal investors have been seeking. The issuer is established in the CMBS market, has a solid track record, is transparent and deals in quality assets. As one of the largest private residential property funds in the Netherlands, specializing in the acquisition, management, letting and sale of high-end properties, Vesteda has the pedigree to interest cautious investors.

The deal was also very conservative. The vanilla structure featured low leverage – a loan-to-value ratio of 33.3% – and was based on a single loan secured on 325 multi-family residential properties and single-family properties.

"It’s the highest-quality, low-risk deal, from an issuer that’s stable and performing well," says Thompson.

When the CMBS market does resume, it will be these conservative structures that will dominate. In the meantime, Thompson sees room in the market for issuers such as Vesteda. "For the right deal, there are opportunities," he says. "But there aren’t many issuers out there and they aren’t under pressure to do deals."

The Vesteda deal is by no means a sign that the CMBS market is open for business.

"No one is under any illusions about market liquidity at the moment," says Thompson.

In the public market, investors have shunned the so-called legacy loans sitting idle on banks’ balance sheets. They are of interest to opportunity funds, but so far there have been few instances of banks willing to discount assets enough to make distressed or stressed sales interesting.

GE Real Estate has been in the vanguard buying up European real estate loans. In April it acquired a €1.272 billion portfolio of senior and whole loans in a performing commercial property loan book from Capmark Europe. The portfolio comprises 39 loans to a group of high-quality borrowers secured on a range of different assets throughout Europe.