One of the missing pieces from European securitization’s record-breaking, blockbuster 2024 was CMBS. As one investor told our ABS reporter Tom Hall this week: “You can’t even call [CMBS] a market anymore: it’s Blackstone financing their logistics portfolios.”
But in a sign of the overall securitization market’s rude health, we have TWO trades backed by commercial real estate out this week, after a total of just four last year. Tom has covered them both and, naturally, one source made the London bus comparison.
This week’s first deal was obviously a Blackstone logistics transaction but the other was a little more intriguing: a granular deal from Finance Ireland with loan sizes ranging from just under €13,000 to less than €20m.
Securitizing loans of that size is tricky for a few reasons. Most importantly, they are arguably not granular enough to treat as equivalent to consumer loans, but on the other hand, they are not big enough for name-by-name underwriting.
It’s a similar problem to the struggles of using securitization to finance SMEs. Perhaps Finance Ireland’s deal is timely in that regard, as George Smith argued SME financing could be part of the answer to Labour’s search for growth in this column, featuring a cricket-themed cartoon!
More CMBS is expected this year, with many forecasters predicting volumes close to the bumper crop of 2021. CRE more broadly was arguably in recovery for much of 2024’s second half, as sponsors came to accept that waiting for rate cuts was not a tenable strategy.
It makes an interesting comparison to the US market. Nick Conforti, our MBS reporter in New York, this week wrote about CMBS facing increased competition for CRE deals, which could force investors to accept looser lending standards.
There’s some talk of a similar increase in appetite for real estate lending in Europe, but it doesn’t feel like the pitiful CMBS supply that might come is really at risk from appetite elsewhere. Rather, any CMBS revival would have to be built on both the securitization market remaining strong and the CRE lending market remaining active.
The reason for the difference with the States? Solvency II capital charges.