Analysts are confident that securitisation issues this year will top the total for 2001, with investors’ appetite remaining keen. Notable third-quarter deals included the biggest issues in the year to date – Bayerishe Landesbank’s €2.2bn Nymphenburg issue
The commercial mortgage-backed securities (CMBS) market is bracing itself for a frenetic final quarter as originators rush to issue by the end of the year. CMBS volumes for the year to the end of the third quarter reached $10bn, but analysts are confident that they will surpass last year’s total of $18.7bn. The third quarter was promising, with CMBS deals worth a total of $5.5bn – more than half of the total for the year to date.
Ratings agency Standard and Poor’s was predicting a 30% increase in CMBS deals this year compared to 2001, but has now revised this to a 10% to 15% increase. “Issues have taken longer to get through than had been expected,” says Ronan Fox, director at Standard & Poor’s. He puts this down to first-time originators having to learn the ropes, and adds that most issues have tended to be around the €500m mark, whereas 2001 saw several larger issues.
Andrew Currie, associate director at ratings agency Fitch, says: “It has been a year of consolidation. More people now understand what the sector is about. A lot of time has been spent educating investors and originators. With first-time originators, nobody knows what the delay will be, but there will probably be one.”
Both analysts see the task of educating investors and originators as a difficult, but ultimately positive, step for the sector, as originators will use their knowledge to undertake repeat issues.
There are already signs of this happening this year. The third quarter saw Morgan Stanley issue its tenth Eloc deal, backed by 22 French office and industrial buildings let to aerospace group Thales. The property was bought by DB Real Estate in February. It also issued Hoteloc, a securitisation which saw a single loan secured against a 32-hotel portfolio bought by Orb Estates in March.
“New lenders are coming through who are expected to become repeat issuers,” says Fox. October saw HVB Real Estate issue the Cannon Street 1 securitisation, which could become a regular programme for the bank.
The third quarter included the largest issue so far this year – the first commercial securitisation by Bayerische Landesbank. The €2.2bn Nymphenburg issue was secured against 245 properties in the UK, US, Ireland, France, Switzerland and Belgium.
Currie says a securitisation in the third quarter by Dutch residential property company Vesteda is expected to be the start of a growth area for the sector. Vesteda raised €1.4bn in an issue backed by income from multi-family dwellings. This deal was different to a residential mortgage-backed issue, as it was backed by income from landlord-owned blocks of housing, not home owners’ mortgages.
Currie says the sector produces stable cash flows, and there is plenty of potential for more deals from countries such as Sweden and Holland. A €269m multi-family housing-backed issue by Swedish company Förvaltnings AB Framtiden has already come to the market in the fourth quarter.
While the appetite for CMBS issues is strong among investors, Currie believes the general volatility of the capital markets is starting to feed through to pricing. Fox echoes this: “It partly reflects market conditions; there has been uncertainty from September onwards with concerns over issues such as terrorism cover and, in some countries, flood cover.”
Deals already happening include the £105m Cannon Street 1; Westhyp’s €814m issue; another Morgan Stanley Eloc, for £331m; and a third tap issue from the Canary Wharf II vehicle. CWII can issue additional bonds as developments in the Docklands complex are let and added to the pool of buildings used as collateral.
The major boost in the final quarter, however, could come though a second issue from the Italian treasury. At a massive €5bn, the issue is expected to be similar to the Italian treasury’s issue at the end of 2001, which saw €2.3bn raised off the back of the proceeds of a property sell-off by seven Italian social security departments.
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Commercial mortgage backed securitisations, 3rd quarter 2002 |
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The Vesteda issue is the first securitisation to be backed by multi-family dwellings |
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Issuer |
Amount $m |
Date |
Book |
Denomination |
|
Hoteloc |
811.0 |
July |
Morgan Stanley |
£531.40 |
|
Vesteda Residential Funding |
1,409.7 |
July |
Deutsche Bank |
€ 1,400 |
|
Eros (European Loan Conduit) |
329.2 |
August |
Morgan Stanley |
€341.45 |
|
Nymphenburg |
2,109.9 |
August |
Commerzbank |
€2,170.20 |
|
Duke |
799.4 |
September |
WestLB |
€808.95 |
|
Total CMBS transactions |
Amount $m |
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|
Total quarter three |
5,459.20 |
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Total quarter two |
2,839.5 |
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Total quarter one |
1,787.9 |
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Year to end quarter three |
10,085.50 |
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Source: Commercial Mortgage Alert (www.CMAlert.com) |
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