January 19, 2015 / 5:21 PM / 3 years ago

New Sharia-compliant property deal offers additional security

* Security package includes direct ownership of property

* Transaction to be marketed to typical CMBS investors

By Anil Mayre

LONDON, Jan 19 (IFR) - Gatehouse Bank, an investment bank specialising in Sharia- compliant products, is marketing a new CMBS-style transaction backed by the rental cashflow from a Paris office property.

The deal is backed by an acquisition facility of more than EUR100m, where the rental payments will be securitised through two classes of fixed-rate certificates. The deal differs from typical CMBS transactions in that it is Sharia-compliant with a security package of direct ownership of the property.

“The benefit of this structure is that the issuer receives rental cashflow from the property, and it is collateralised by the property itself and not through a mortgage, which removes any legal uncertainty,” said Natale Giostra, head of real estate finance at Gatehouse Bank.

In France, borrowers can seek protection from their creditors through ‘sauvegarde’, or a safeguard procedure which stops all cash flowing to the securitisation structure.

The legal battle over the Coeur Defense loan from Lehman Brothers securitised in Windermere XII is probably the highest profile of such a case, which rumbled on for more than five years. It was eventually resolved through Lone Star’s purchase of the equity of the Coeur Defense owner, funded by Bank of America. The US bank then securitised part of the senior loan through Taurus 2014 FR-1 in August.

This new structure, labelled a commercial rental-backed security (CRBS) by Gatehouse, removes the uncertainty because the certificates are backed by the direct legal ownership of the building, Gatehouse said.

The CRBS is being shown to investors starting this week, representing the culmination of three closely-tied transactions. These include the provision of acquisition financing by Gatehouse, the property investor’s acquisition of the Paris property, and the securitisation of this facility, said Giostra.

The decision to issue Sharia-compliant certificates is driven by Gatehouse’s requirement to maintain Islamic principles.

Gatehouse, which was selected from a panel of potential lenders, conducts all its business under Sharia principles. It could therefore not provide conventional mortgage financing that would render this deal a standard CMBS.

Giostra said the bank would look to attract typical CMBS buyers though, which are increasingly seeking to access this asset class. He also sees potential for more such issuance.

“Given the increasing demand for European CMBS and the unique structure of this securitisation, we expect strong market appetite for this issuance, and are confident the market for this structure will continue to grow,” he said.

Gatehouse will look to benchmark the deal which will be rated against European CMBS issued in 2013 and 2014.

The notes will carry a senior/junior structure in the form of five-year fixed rate Class A and B certificates with a five- year tail between the maturity and legal final.

In keeping with securitisation rules, 5% of the risk will be retained. Mount Street Mortgage Servicing Limited has been mandated as servicer and special servicer. Gatehouse is sole structuring agent, arranger and lead manager. (Reporting by Anil Mayre; editing by Alex Chambers, Luzette Strauss)

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