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Capital Markets

Rare European CMBS deal prices

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.

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