Friday, 04 January 2013

Morgan Stanley, BofA Launch Year's First Conduit

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Commercial Real Estate Direct Staff Report

The first CMBS deal of what is expected to be a robust first quarter has hit the market.

The $1.4 billion transaction, Morgan Stanley Bank of America Merrill Lynch Trust, 2013-C7, is backed by 64 loans, most of which were written by Morgan Stanley. The largest is a $165 million piece of a $265 million debt package against the Chrysler East Building, a 745,410-square-foot office building at 666 Third Ave. in midtown Manhattan.

The loan requires only interest payments for its 10-year term and has a coupon of 4.31 percent.

Its collateral, which is owned by an affiliate of Tishman Speyer Properties, is 96.3 percent leased and generated $23.1 million of net cash flow during the 12 months through the end of October. Its largest tenant is Credit Agricole, which leases 140,369 sf through 2015. However, it subleases all of its space to other tenants that pay slightly less in rent than Credit Agricole does.

Morgan and BofA expect to price their transaction some time next week. The underwriters ought to do well. CMBS spreads have remained relatively tight. Senior AAA bonds, for instance, were being quoted at a median spread of 75 basis points more than swaps this week, unchanged from the week before. And spreads for lower-rated bonds had tightened by as much as 50 bp for BBB- bonds. That means Morgan and BofA will be able to sell bonds from the CMBS transaction at relatively high prices.

The deal is the first of what could be as many as nine conduit transactions totaling some $12 billion that are slated to hit the market during the first quarter. Each is expected to be collateralized by $1.1 billion to $1.5 billion of mortgages. Other issuers with deals in the pipeline include the teams of Goldman Sachs and Citigroup; Deutsche Bank and Cantor Fitzgerald; Deutsche and Ladder Capital Finance; UBS and Barclays Capital; and Wells Fargo and RBS. JPMorgan Securities is also expected to bring a deal to market.

Conduit transactions aren't the only deals in the pipeline. A number of recently written large loans are expected to be securitized as well. Examples include the $700 million to $800 million of debt that Citi and Bank of America are providing to fund the purchase of Apple REIT Six Inc. by Blackstone Real Estate Partners VII.

As bond spreads have narrowed, securitized lenders have become more competitive against bank and life-insurance company lenders in the pursuit of large loans against trophy properties.

Comments? E-mail Orest Mandzy, or call him at (267) 247-0112, Ext. 211.

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Additional Info

  • Syndicate to Realpoint: No
  • Subject: Commercial MBS (CMBS)
  • Company: Bank of America Corp., Morgan Stanley Dean Witter
  • Private: No
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