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
The CMBS deals that have been structured post-crisis have
typically featured some, but not all of the CMBS 2.0
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