CMBS 2.0 hopes to revive European CRE securitisation
LONDON, Nov 14 - The Commercial Real Estate Financial Council Europe has finalised its version of best practice in European CMBS, dubbed "CMBS 2.0", in an attempt to curb some of the wilder pre-crisis practices that have resulted in chaotic restructurings in several deals.
CREFC Europe circulated a draft set of principles at the end of July for market comment with a deadline for the end of September, and the principles were launched at the CREFC Europe Autumn Conference on Wednesday morning.
The CMBS market in Europe has been virtually dead since the crisis, with only four new deals. The gap in pricing between banks' balance sheet lending and CMBS execution is the main culprit, but this has been exacerbated by unpredictable performance and poor transparency in some outstanding deals.
Structural features like long-dated swaps and interest-only notes have meant some sponsoring investment banks continued to get paid, even as noteholders take losses on deals.
Issues around control rights have also thrown up problems. Typically the most junior class of CMBS notes that is in the money gets to appoint a special servicer, but inconsistent valuations, documentary oversights and tie-ups between junior lenders and servicers have allowed some deals to stall.
CMBS 2.0 sets out preferred deal structures and best practices, but it is not a prescriptive template - and there is no formal labelling process. Instead, it is hoped that it will be adopted as a set of general market standards.
"It will ultimately be a matter for market participants to decide whether or not to endorse them by applying them to transactions," says the preamble to the guidelines.
It deals with six main topics areas: investor disclosure, revenue extraction, investor identification and discussion, the role of transaction counterparties, and CMBS structural features.
The CMBS deals that have been structured post-crisis have typically featured some, but not all of the CMBS 2.0 recommendations.
Deutsche Bank's DECO 2011-CSPK, a securitisation of the senior loan in the Chiswick Park office complex and the first post-crisis deal, includes enhanced investor disclosure and much greater clarity of the role of deal counterparties, but also features a class X - a controversial feature allowing the structuring bank to monetise excess spread in the deal.
Full details of the recommendations can be found on the CREFC Europe website. (Reporting by Owen Sanderson; Editing by Alex Chambers and Julian Baker)
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