NEWS ANALYSIS: Filling the gap

Securitisation may have become an easy scapegoat for all that was wrong in the real estate markets, but its absence from the capital markets has been keenly felt by all, not least those in need of refinancing.

Of the $3.47 trillion of commercial and multifamily mortgage debt outstanding in the US at the end of the second quarter, $714 billion of that total (21 percent) was held by CMBS, CDO and ABS issuers, according to the latest data from the Mortgage Bankers Association. As maturities start to mount, borrowers face few – if any – refinancing options.

For debt shop Hudson Realty Capital that’s a good thing. The New York-based firm has recently hired former Citigroup and Lehman Brothers securitisation specialist Precilla Torres to help further drive its strategy in targeting the securitisation market.

A mid-market real estate investor, Hudson has played in all parts of the capital stack, targeting high-yield debt origination and the acquisition of discounted debt.

But Hudson’s managing director Spencer Garfield said the opportunity to purchase whole loans out of securitisation, once the debt has been transferred to special servicers, was simply “tremendous. We really think that is going to be a great opportunity and it’s going to continue to build for several years,” he said.

Torres will play a key role in that effort helping the firm source, review and underwrite potential deals. And she certainly has the experience. At Citigroup, Torres was managing director with oversight of the bank’s large-loan execution and structuring group, including its securitisation programme. Torres also served as lead banker on Lehman’s CMBS team, responsible for the LB-UBS fixed-rate fusion CMBS scheme, which became the bank’s staple securitisation brand from 2000 to 2008, according to Garfield.

Hudson is also considering creating a separate mid-size performing loan platform to originate mortgages on cash flowing properties, a move Garfield said would target the capital gap “left by the lack of securitisation”.

Although the idea is “far from becoming a reality”, Garfield said it was one of several business plans being pursued by the firm. As part of that plan, Hudson would also consider using the secondaries capital market to exit such loans, either through the securitisation of performing loans in future years, when and if the market returned, or selling the whole loans once they are “seasoned”.

“Securitisation was a key part of the real estate markets and the lack of such a market now will create opportunities for several years,” Garfield said, adding that he expected securitisation to return in one of two forms with either “ultra conservative” underwriting of only top quality assets, or “more aggressive” underwriting with issuers retaining “skin in the game”.