FEATURE: The conduit of growth

It might be a small part of the overall European real estate finance scene, but commercial mortgage-backed securities (CMBS) as an offshoot of the industry is one that private equity real estate firms have played a significant role in as original borrowers.

As a glance at the examples opposite show, five of the six ‘landmark’ securitizations that occurred in 2014 involved a loan or loans made to household names, being The Blackstone Group, Apollo Global Management, Mount Kellett Capital Management, APG Asset Management and The Canada Pension Plan Investment Board (CPPIB).

As original borrowers, these groups have played an unwitting role in the evolution of a market that is yet to recover since the global financial crisis of 2008 but one that is at least developing.

Make no mistake, the European CMBS market is a shadow of itself. In 2014, volumes reached just €3.5 billion, down even on 2013 levels, and certainly a tiny fraction of 2006, which turned out to be the high-octane peak of the market when levels reached a now impossible-sounding €65 billion.

Nevertheless, the issuances that did take place last year demonstrate this part of the European real estate finance market is at least moving on and private equity firms are involved because securitizations are following their activities. 

For example, in 2014, a securitization occurred called the Moon CMBS which represented Bank of America Merrill Lynch’s first UK securitization since the crisis of seven years was the original borrower of the loan that got securitized. Around the same time last year came GONDOLA. This was said to be Deutsche Bank’s first multi-loan CMBS since the global commercial crisis. The sponsor? The Blackstone Group. Then there was MODA, this time said to be only the second securitization by Goldman Sachs since the global finance crisis. MODA was the securitization of two loans extended to The Blackstone Group used to acquire three shopping centers and two outlet villages in Italy. Goldman’s first CMBS, incidentally also involved private equity. In November 2013 Goldman’s Gallerie CMBS saw the securitization of a senior loan made to a joint venture which involved Morgan Stanley Real Estate Fund VII acquiring 13 Auchan shopping centers and two retails parks, also in Italy. After MODA came Tulip, a securitization by Deutsche Bank of loans made to Mount Kellett and Czech investor PPF Real Estate Holdings that they used to acquire real estate in The Netherlands. This landmark CMBS is said to be the first multi-sponsor CMBS in Europe since the global financial crisis. 

These CMBS issuances demonstrate that private equity real estate firms have played a part even if that was not an aim in the development of European CMBS.

Roman Kogan, who is responsible for new lending and origination in Europe at Deutsche Bank’s commercial real estate group, explained the evolution began with Blackstone’s acquisition in 2012 of Chiswick Park, a business park in west London. The market has clearly since then moved on from securitizing a single loan made to finance the acquisition of a high-quality single asset in the UK. 

Kogan added the next step in the “evolution” could be loans in multi-jurisdictions becoming securitized.

It is no coincidence that deals by private equity real estate firms have tended to be involved in securitizations. As experts explained, banks are finding they can only make an acceptable profit from securitization where there is less competition from mainstream banks and insurance companies that are willing and able to lend on core assets and hold those loans on the balance sheet. Banks such as Deutsche Bank, Goldman Sachs and Bank of America Merrill Lynch, which are said to be the most active lenders, can only really find enough of a spread and charge high enough fees for certain CMBS issuances for deals and locations where there is thinner air, which is exactly where private equity real estate firms like to operate.

CMBS volume is still small, but there are signs of greater activity. Just before the end of the year, Deutsche Bank organised a €679.9 million securitization of 29 office buildings in Germany in probably the biggest non multi-family CMBS since the global financial crisis. 

Christian Lambie, a partner in the London office at law firm Allen & Overy, reveals further development still. He said: “The CMBS and real estate capital markets are developing rapidly,” adding, “NPLs might involve short-term loan propositions – quickly turning things around to sell, but a three–year expected maturity is not an unworkable investment opportunity in CMBS.” That points to be more ‘firsts’ in the recovering CMBS market and private equity firms will almost certainly play their part. 



Take a bow

From moon to Bonn, here are the six most significant European CMBS transactions in 2014. Private equity real estate firms and global investors were involved as original borrowers in all except one

Name of CMBS: Moon 

When: June 2014

Borrower: Apollo Global Management

Bank: Bank of America Merrill Lynch

Size of CMBS: £211.5 million (€265 million)

Comment: The CMBS was significant as it was linked to multiple properties rather than just one

Apollo Global Management, the New York private equity firm, acquired Project Moon, a portfolio of around 135 assets from Aviva Commercial Finance for around £347.2 million (€440 million; $527 million) in December 2013. Bank of America Merrill Lynch (BAML) then arranged to securitize the senior loan of £211.5 million (€265 million) to Lunar JV Finance. It was said to be the first UK CMBS arranged by BAML since the global financial crisis.




When: June 2014 

Borrower: The Blackstone Group

Bank: Deutsche Bank

Size of CMBS: €355 million

Comment: This was said to be Deutsche Bank’s first multi-loan CMBS since the global commercial crisis

The Blackstone Group was busy in Italy in 2013 and 2014. At one point it bought Italian logistics, retail and office assets. Deutsche Bank made three loans to the New York firm, the largest being a €140 million financing for Blackstone to buy two offices and a hotel, and the second largest being a €134.5 million loan to buy 13 logistics assets. Deutsche Bank then packaged the three separate loans and sold them to investors.



Name of CMBS: Agora

When: September 2014

Borrower: Westfield, APG, CPPIB

Bank: Deutsche Bank and Credit Agricole 

Size of CMBS: £750 million (€965 million; $1.1 billion) 

Comment: Shopping center owner Westfield and its two global investment investment partners were borrowers in what became the year’s largest CMBS

Westfield’s shopping center in east London is right next to the London 2012 Olympic stadium site. Two banks led a CMBS that became the largest of 2014 and a price that was said to show how strong appetite had become among investors for a structured product backed by this kind of real estate.



Name of CMBS: MODA

When: July 2014

Borrower: The Blackstone Group

Bank: Goldman Sachs

Size of CMBS: €198.2 million

Comment: This securitization was of two loans extended to The Blackstone Group that it used to acquire three shopping centers and two outlet villages in Italy

The Blackstone Group bought five retail assets in Italy from Aberdeen Asset Management. These included the Franciarcorta Outlet Village Rodenegg Saiano in Brescia, southern Italy, for €126 million. In July 2014, Goldman Sachs launched MODA, a €198.2 million securitization of two loans provided to Blackstone to acquire the five assets. It was said to be Goldman Sachs’ second securitization since the global finance crisis following the Gallerie CMBS in November 2013.



Name of CMBS: BONN

When: December 2014

Borrower: IVG Immobilien

Bank: Deutsche Bank

Size of SMBS: €679.9 million

Comment: This CMBS is notable for its size, being almost twice the size of the hitherto largest notable CMBS in 2014.   

IVG Immobilien, the Bonn-headquartered German property company battling to come out of bankruptcy proceedings, picked Deutsche Bank in a competitive bid situation to arrange the securitization of a portfolio of 29 office buildings in Germany in probably the biggest non multi-family CMBS post-global financial crisis. It took overall volumes for 2014 to around €3.5 billion, and to €4.2 billion counting privately placed CMBS as well as publicly sold securities. It was a good end to the year, but volumes were well down on the €8.2 billion total in 2013, a year inflated by a wave of German multi-family CMBS issuances not repeated in 2014.



Name of CMBS: Tulip

When: October 2014

Borrower: Mount Kellett Capital Management

Bank: Deutsche Bank

Size of CMBS: €250 million

Comment: This CMBS was said to be the first multi-sponsor loan in Europe since the global financial crisis. 

Between July 2013 and May 2014, New York-headquartered firm Mount Kellett Capital Management and Czech investor, PPF Real Estate Holdings, became active in The Netherlands market, buying secondary properties. In October 2014, Deutsche Bank then proceeded to sell a CMBS called Tulip on the back of two loans made to the firms. The €250 million issuance is reputedly the first multi-sponsor conduit CMBS since the financial crisis.