The loan backing the Taurus 2016-2 DEU securitization refinanced a term loan credit facility obtained by Dream Global REIT for its initial properties. The initial €244.1m loan, made in December 2015, had a five year term at a rate of 225bp over three month Euribor. The securitization is backed by a portfolio of predominantly office buildings across Germany with an appraised value of €493.1m.
The deal is only the second to be launched this year, in what is a sporadic market for new issue paper. Bank of America Merrill Lynch is the sole arranger and manager and is looking to price the deal in early May after a roadshow over the next few days.
BAML has been the only active CMBS issuer in the last seven months, with three deals launched since September last year under its Taurus label. In January, the bank sold a €317m deal to exit a loan to Blackstone that funded the acquisition of 55 German retail properties in September last year.
CRE lenders turn to other exit strategies
Given the strong euro-denominated demand across all asset classes in recent weeks, one syndicate banker said he was surprised that more deals have not surfaced this year.
But exiting a CRE loan through a securitization is uncompetitive compared to other strategies, such as syndicating the loan or selling it whole, said a CMBS analyst on Thursday.
“Though spreads have stabilised recently, and even tightened recently in line with general ABS market, the underlying theme remains the same — it’s still relatively less attractive as a funding option,” he said.
A report from JP Morgan released on Monday this week said that at the CREFC conference held last week, “there was a clear preference by originators for syndication over securitization, driven in part by the comparative challenges and complexities of CMBS, including multiple third party involvement, data reporting requirements, and lack of transparency in the rating agency process”.
The CMBS analyst said a trend over the past two or three years was that CMBS deals were being backed by collateral considered below that of top-end prime assets. The highest quality collateral was being financed much more cheaply through other exit strategies he said, because the yield on those assets was not enough to make a CMBS deal economic, given the spreads that investors would require on the notes.
CMBS investor base ‘considerably lacking’
Mirroring trends in the residential market, both analysts pointed out that investors are looking more to whole loan exposures rather than holding securitized products, because of regulatory treatment and the higher capital weightings applied to ABS products under Basel III and Solvency II regulations.
“The depth of the European CMBS investor base is considerably lacking compared to both the (more competitive) syndicated loan market, as well as the US CMBS market,” wrote analysts in the JP Morgan report, referring to panel discussions at the CREFC conference.
The deal structure features a €140.1m senior ‘A’ class, rated triple-A by Moody’s Investors Service and DBRS. The notes have a 4.6 year weighted average life. A €37m ‘B’ class, rated Aa3/AA, is also set to be offered. The deal also features a €27.4m ‘C’ class, rated A3/A (low), and a €25.635m ‘D’ class, rated Baa3/BBB (low).