* Chiswick Park 360 mln stg CMBS seen closing in Q2
* Revival to give new funding source for property industry
* Concerns of CMBS downgrades, restructuring weigh on market
By Daryl Loo
LONDON, Feb 22 Europe's market for commercial
mortgage-backed securities (CMBS), comatose for more than three
years, could be revived in a matter of months, starting with a
Blackstone (BX.N) deal worth 360 million pounds ($582 million).
The new mortgage bond will be secured on a loan from
Deutsche Bank (DBKGn.DE), to fund the private equity giant's 480
million pound purchase of the Chiswick Park business estate in
London, two sources familiar with the transaction told Reuters.
The deal's success will be closely watched by a debt-starved
European real estate industry, hungry for new funding sources as
it struggles to recover from its worst downturn in decades.
The loan to Blackstone -- at a 75 percent loan to value --
is expected to be finalised by end-March, and packaged and sold
to investors as a CMBS in the second quarter of this year, said
one of the sources, on condition of anonymity.
Blackstone declined to comment. Deutsche Bank declined to
comment specifically about this transaction.
"We are very confident that the CMBS market in Europe will
re-open in 2011 and we will certainly be a participant in it,"
said Chris Dunn, Deutsche Bank's head of EMEA commercial real
estate lending, adding investors such as insurers and pension
funds had indicated a strong desire to return to the sector.
"They've been underweight commercial real estate for several
years now, so now they are actually very motivated to try and
deploy capital for commercial real estate because it's a good
time in the cycle to do so," Dunn told Reuters in an interview.
European commercial property bonds, about a fifth the size
of the $855 billion U.S. market, has lagged the recovery in the
United States due to differences in the way they are structured,
prompting calls for greater reforms. [ID:nLEE6JC000]
"CMBS will come back in a more plain vanilla fashion because
the market does not want complex structures anymore ... and it
is pricing that is going to be the issue," said Barry Osilaja,
director of structured debt at Jones Lang LaSalle (JLL.N).
A market source said a CMBS deal priced at a premium of
20-40 basis points above the yield on triple-A rated residential
mortgage-backed securities (RMBS) could be seen as "attractive".
Although upcoming banking rules under Basel III could make
it more expensive and difficult for banks to issue CMBS, this is
unlikely to stall a European CMBS revival, said Charles Roberts,
a partner and CMBS specialist at law firm Paul Hastings.
"Issuance will happen in spite of the regulations. What we
see now is the market saying it needs securitisation for a
recovery, because it is an important and efficient technique,"
Roberts said, adding he expects to see 5-6 new European CMBS
deals worth up to 2 billion euros this year.
That is still a drop in the ocean compared with an estimated
$126 billion in property debt financing gap over 2011-2013,
however, prompting Moody's to warn of higher downgrade risks for
some European CMBS this year, potentially curbing investors'
appetite for new issues. [ID:nSGE6AM00F] [ID:nLDE7112B3]
"The current performance of existing CMBS is not helping
because when investors see a series of downgrades, it will be
more difficult to attract them," said Christophe de Noaillat, a
senior vice president at Moody's Investors Services.
"At best we expect to see one or two new real CMBS
transactions this year," de Noaillat said, adding these will
differ from property bonds issued by Tesco (TSCO.L) last year.
The supermarket chain raised billions of pounds from bonds
secured on rents from its UK stores, but experts said those were
priced on the strength of Tesco's corporate rating instead of
underlying properties in more traditional CMBS. [ID:nLDE65T15I]
A successful revival could also hinge on the outcome for the
CMBS noteholders who invested in the market's peak years of 2006
and 2007, but now face steep losses as complex structures make
it difficult to restructure the bonds or sell the properties.
"We expect more noteholders to become increasingly activist
in 2011, and coming together to show a common will so that their
interests are represented," said Paul Lewis, director of special
servicing at CBRE (CBG.N) Real Estate Finance.
"Generally noteholders have had enough of blanket loan
extensions so there will be more motivation to do innovative
restructuring ... and for a lot of these deals, impending loan
maturities will be the catalyst for action," Lewis said.
(Additional reporting by Kathrin Jones in FRANKFURT; Editing by
(See www.reutersrealestate.com for the global service for real
estate professionals from Reuters)