Europe’s CMBS originators turn to bonds

Author: Danielle Myles | Published: 23 Aug 2013
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  • CMBS is falling out of favour with Europe’s biggest originators, including German multifamily companies;
  • Many are opting to issue cheaper and less complicated securities;
  • It puts a dent in hopes that the asset class may have been making a return this year

One of Europe’s biggest commercial mortgage backed securities (CMBS) originators has warned that the asset class may lose ground to unsecured bonds and bonds secured by property.

It casts doubt on recent talk of a CMBS revival, been based on last month’s £263 million ($412 million) Toys R Us deal and Gagfah’s €2.06 billion deal which closed in June.

Would-be CMBS originators have recently turned to alternative debt structures when raising capital. Deutsche Annington Immobilien’s (DAIG) issuance of €1.3 billion in unsecured bonds in July, is a case in point.

"Unsecured bonds will play an important role in Germany’s residential market in terms of financing," Michael Bütter, DAIG’s general counsel, told IFLR.

Further reading

German multifamily doesn’t signal CMBS revival

CRA’s slammed for causing CMBS bottleneck

The restructure of Europe’s first CMBS default

DAIG’s were the first unsecured bonds in the German property sector, which has dominated Europe’s post-crisis CMBS market. Other German multifamily companies are tipped to follow.

"And whoever does this job best is most likely to successfully consolidate the real-estate market," said Bütter.

Bonds are a cheaper and less complex alternative to CMBS, and unsecured structures give issuers greater flexibility in increasing on-balance sheet capital and debt.

DAIG – which originated GRAND, Europe’s biggest CMBS to-date – was able to launch its unsecured bonds after receiving a BBB rating by Standard & Poor’s on the basis of its recent initial pubic offering.

CMBS alternatives

According to a Standard & Poor’s report released this week, CMBS issuances in Europe have reached their highest level in four years.

But this year’s volumes are largely attributable to German multifamily deals, a distinct asset class which bear little resemblance to the broader CMBS market, and variations of traditional CMBS structures.

"There are deals in the market that look a little like CMBS, but actually aren’t," said one London-based structured debt partner.

The Toys R Us deal, for example, is more akin to a restructure, funded by the original noteholders. And Intu Shopping Centre used a secured bond for its £1.3 billion refinancing in April, rather than a pure CMBS structure as it had used in the past.

"These deals are interesting, as they show that CMBS issuers are tapping the capital markets, but not necessarily through classic CMBS," the partner said.

See also:

German multifamily doesn’t signal CMBS revival

CRA’s slammed for causing CMBS bottleneck

The restructure of Europe’s first CMBS default

New WBS options for real-estate companies