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Thursday, 02 April 2020

KKR Top Buyer of CMBS Conduit B Pieces, Top Risk Retainer in 1Q

KKR Real Estate Credit Opportunity Partners took down the three B-pieces of deals totaling $3.35 billion, or 30.7 percent of the quarter's conduit issuance, making it the most active buyer of B-pieces. It also retained the horizontal risk pieces of four deals - three conduits and a single-borrower transaction - totaling $202.2 million.

Commercial Real Estate Direct Staff Report

KKR Real Estate Credit Opportunity Partners was the most active buyer of CMBS conduit B-pieces. It also was the most active retainer of risk pieces of CMBS deals.

The affiliate of mortgage REIT KKR Real Estate Finance Trust Inc. took down the three B-pieces of deals totaling $3.35 billion, or 30.7 percent of the quarter's conduit issuance. It also retained the horizontal risk pieces of four deals - three conduits and a single-borrower transaction - totaling $202.2 million.

Domestic, Private-Label CMBS Issuance

 

1Q2020

1Q2019

 

#Deals

Vol $mln

MktShr%

#Deals

Vol $mln

MktShr%

Conduits

11

11,589.96

53.78

10

8,698.94

52.60

Single-Borrower

19

9,561.05

44.36

18

7,438.30

44.98

Other

1

400.10

1.86

1

399.20

2.42

Total

31

21,551.11

 

29

16,536.44

 

KKR consistently has ranked among the top risk retainers since rules mandating the retention of risk pieces of structured-finance deals were instituted three years ago. It's in the process of raising a follow-up fund through which it would capitalize its investments. It had raised $1.1 billion through its first fund, KKR Real Estate Credit Opportunity Partners I, which was raised in 2017. And it so far has received some $459 million of equity commitments for a follow-up, Fund II, which presumably would be at least as large as the initial vehicle.

The quarter's issuance was comprised of 11 conduits with a balance of $11.6 billion and 19 single-borrower transactions totaling $9.6 billion.

KKR bought B-pieces from three deals, while Ellington Management bought two totaling $2.5 billion, giving it a 23.2 percent share of that business. No other investor took down more than one B-piece.

Most-Active CMBS B-Piece Buyers

 

1Q2020

1Q2019

Bpce Buyer

#Deals

Vol $mln

MktShr%

#Deals

Vol $mln

MktShr%

KKR Real Estate Credit

3.00

3,354.17

30.69

3.00

2,213.34

25.44

Ellington Management

2.00

2,533.37

23.18

1.25

1,112.19

12.79

Eightfold Real Estate Capital

1.00

1,220.06

11.16

1.00

1,256.00

14.44

Rialto Capital Management

1.00

962.83

8.81

1.00

934.87

10.75

Seer Capital

0.75

900.08

8.23

0.00

0.00

0.00

Argentic Securities

1.00

830.50

7.60

0.00

0.00

0.00

3650 REIT

1.00

828.93

7.58

1.00

829.25

9.53

LNR Partners

0.25

300.03

2.74

0.00

0.00

0.00

Prime Finance

0.00

0.00

0.00

1.75

1,579.20

18.15

LoanCore Capital

0.00

0.00

0.00

1.00

774.09

8.90

None

1.00

660.00

6.04

0.00

0.00

0.00

TOTAL

 

10,929.96

 

 

8,698.94

 

Meanwhile, all conduits so far have been structured with either vertical or hybrid risk retention. The horizontal structure has become obsolete given the economic advantages to the hybrid structure.

CMBS Risk Retention Structures 1Q2020

 

Total

Conduit

Single Borrower

Other

 

#Deals

Bal $mln

Shr%

#Deals

Bal $mln

Shr%

#Deals

Bal $mln

Shr%

#Deals

Bal $mln

Shr

Horizontal

6

5,055.10

23.46

0

0.00

0.00

6

5,055.10

52.87

0

0

0.00%

Vertical

18

9,299.52

43.15

4

4,393.47

37.91

13

4,505.95

47.13

1

400.1

100.00%

Hybrid (L-shaped)

7

7,196.49

33.39

7

7,196.49

62.09

0

0.00

0.00

   

0.00%

TOTAL

31

21,551.11

 

11

11,589.96

 

19

9,561.05

 

1

400.10

 

Benchmark Mortgage Trust, 2020-B17, for instance, was among the seven conduit transactions with a hybrid risk-retention structure. KKR retained a 2.12 percent horizontal slice of the $1 billion deal, or bonds valued at $21.5 million, while the deal's underwriters retained $29.6 million of bonds representing the vertical retention strip. Had the transaction been structured with only horizontal risk retention, KKR would have had to buy bonds with a market value of $50.7 million.

Vertical strips, meanwhile, include sizable chunks of highly rated bonds, so arguably, they don't quite represent what some would consider "true" risk in a deal.

If only horizontal risk pieces are counted, Oxford Properties Group was the second-most active buyer. It bought the horizontal strip of BX Commercial Mortgage Trust, 2020-BXLP, a $3.4 billion single-borrower transaction backed by 349 industrial properties that Blackstone Real Estate Partners IX had purchased from an affiliate of Colony Capital Inc.

Outside of Oxford, most of the other major buyers of horizontal risk pieces all bought slices of conduit deals. Those include 3650 REIT, which retained a $66.3 million horizontal piece of an $828.9 million conduit transaction as well as the deal's vertical strip, and Rialto Capital Management, which retained a horizontal piece of a $962.83 million conduit transaction.

Most-Active Retainers of CMBS Risk 1Q2020

Investor

Vert#

Vertical Amt$mln

Hor#

Horizontal

Amt$mln

Total #

Tot Amt $mln

KKR Real Estate Credit Oppy

   

4

202.21

4

202.21

Oxford Properties Group

   

1

170.05

1

170.05

JPMorgan Chase Bank

6

83.64

   

6

83.64

3650 REIT

            1

                14.26

1

66.31

1

80.57

Wells Fargo Bank

5

63.12

   

5

63.12

Deutsche Bank

4

58.12

   

4

58.12

Bank of America

3

52.56

   

3

52.56

Shelter Growth Capital

   

2

52.50

2

52.50

Rialto Capital Management

   

1

51.24

1

51.24

Goldman Sachs

5

40.65

   

5

40.65

Citigroup

3

38.68

   

3

38.68

Morgan Stanley

2

38.52

   

2

38.52

Sabal Financial

1

20.01

   

1

20.01

Pacific Life

   

1

19.70

1

19.70

Eightfold Real Estate Capital

   

1

16.82

1

16.82

Natixis

1

12.63

   

1

12.63

KeyBank

1

12.20

   

1

12.20

Barclays Capital

1

12.05

   

1

12.05

Argentic Securities

   

1

9.23

1

9.23

Prima Capital

   

1

8.30

1

8.30

Societe Generale

1

8.00

   

1

8.00

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.





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Data Digest

 

CMBS DELINQUENCY VOLUME

dqdataFP1

 

CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

cppichart FP

 

 

CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

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