The US bank, which completed its first European securitisation deal last year, has recruited a team from Nomura to head a new European property finance arm targeting €100m-plus deals
US investment bank Bear Stearns wants to provide a one-stop property shop for small institutions and rich individuals, and has hired three Nomura employees to achieve this aim.
The small team forming Bear Stearns’ new Real Estate Principal Investments (REPI) Group is looking for off-market deals with lot sizes of more than €100m in France, Germany, the UK, Spain and Sweden. It will take care of the whole transaction, including due diligence, valuation and the legal aspects, and will underwrite the debt.
Philippe Vienot, co-head and managing director of REPI, hopes to close the first deals by the end of the year. Together with Ralf Nöcker and Marie Brixtofte-Clapshaw, Vienot recently joined from Nomura, where he and his two colleagues were involved in various property deals with a total volume of €2.5bn. The three had worked on transactions such as the €440m acquisition of Centre Parcs Europe and the €142m purchase of the German REO 1 portfolio by Nomura.
Vienot reports jointly to Yves Leysen, senior managing director and head of debt, corporate finance, in Europe, and to Chris Hoeffel and Randy Reiff in New York, senior managing directors and global co-heads of commercial mortgage-backed securities.
In February Bear Stearns lost Philip Ward, its European head of real estate, gaming, lodging and leisure, to Eurohypo. Ward, a former Rothschild banker, had joined Bear Stearns in October 2001.
While the REPI Group will help arrange equity it won’t co-invest in deals. Senior debt may be syndicated or securitised or it may end up on Bear Stearns’ balance sheet.
“We will systematically keep part or all of the junior mezzanine debt to show our commitment,” says Vienot. The REPI Group can hold junior mezzanine debt of up to $100m. As the junior mezzanine tranche of a deal typically represents 5% of the overall capital structure, this allows the team to underwrite deals worth up to $2bn before it needs to sell on the debt.
“REPI will provide debt financing at very competitive levels, typically up to a 95% loan-to-value ratio,” says Vienot. “The team will charge standard underwriting fees on the debt and a structuring fee for arranging the deal.” A lot of money for European property investment is coming from the Middle East and Ireland, Vienot says.
Securitisation debut
In September, Bear Stearns, together with JPMorgan Chase, completed its first European true-sale securitisation through Ursus, a joint venture securitised loans conduit. The £149.4m issue, named Ursus EPC, was backed by eight UK commercial loans, the largest originated by JPMorgan and the rest by Bear Stearns. The loans are secured against 23 properties across the UK — 56.6% offices, 26.3% retail property, 7.6% warehouses and 5.8% residential. The average loan-to-value ratio is 75.5%.
“We don’t have the same clout in Europe, but there is a drive to replicate our US successes,” says Adam Toft, managing director, principal & asset backed finance. Toft joined Bear Stearns in April from rating agency Moody’s. Bear Stearns has also brought in two property loan originators from HBOS this year: Peter McAnally and Marie Fernandez.
In the US, Bear Stearns’ commercial mortgage backed-securities (CMBS) team lends around $6.7bn each year, in an average of around 15 transactions a year. So far this year, Bear Stearns has lead-managed around $77bn of both commercial-backed and residential-backed securitisations.
In the UK, it has boosted its residential mortgage lending capacity by acquiring a minority stake in Southend-based mortgage broker Essex & Capital. The firm, which lends to people who have difficulty obtaining mortgages from high-street lenders, has links with Rooftop Mortgages, one of Bear Stearns’ UK mortgage lending businesses.
Bear Stearns, which has around $52.1bn of capital, focuses on three core sectors: capital markets, wealth management and global clearing services. The company claims to have never had an unprofitable year since its foundation 80 years ago.
In the fiscal year ending November 30, 2004, the company reported revenues of $6.8bn and net income of $1.3bn. Its profit margin was 29.7%.
Bear Stearns has had a presence in London since 1980 where it employs 1,000 people, of which 60 are directly involved with property. The CMBS team has 12 people. This may be small in comparison to other banks, but the European team is backed by colleagues in the US. “We can be more nimble with a small team,” says Toft. “We don’t want to be constrained by too many mouths to feed.”
Toft sees great opportunities in Germany, which is moving away from synthetic securitisation to true-sale securitisation. In synthetic securitisations, while banks sell the risk on to investors, they typically keep the loans and underlying collateral on their books. “The German market has been changing; we’ve already looked at [securitisation deals for] retail, office, multi-family residential and the odd hotel property,” says Toft.
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