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Monday, 06 January 2020

Rialto Wins Back B-Piece Crown; KKR Keeps Top Spot Among Risk Retainers

Rialto Capital Advisors last year bought the B-pieces of a dozen CMBS conduit transactions with a total balance of $11.7 billion, bumping KKR Real Estate Credit from the top spot in a ranking of B-piece buyers. But KKR took top honors in a ranking of risk retainers. It also bought 10 B-pieces of deals totaling $9.3 billion.

Commercial Real Estate Direct Staff Report

Rialto Capital Advisors last year bought the B-pieces, or most subordinate bonds of a dozen CMBS conduit transactions with a total balance of $11.7 billion, bumping KKR Real Estate Credit from the top spot in a ranking of B-piece buyers. KKR acquired 10 B-pieces of deals totaling $9.3 billion.

But KKR took top honors in a ranking of buyers of horizontal risk-retention pieces of CMBS conduit deals. It bought $755 million of bonds from 10 deals, or 31 percent of all conduit horizontal risk-retention pieces.

Most Active CMBS B-Piece Buyers

 

2019

2018

Buyer

#Deals

Vol $mln

Mkt Shr%

#Deals

Vol $mln

Mkt Shr%

Rialto Capital Advisors

12.00

11,732.23

23.87

10.00

8,618.51

21.47

KKR Real Estate Credit

10.00

9,286.49

18.89

10.00

8,762.05

21.82

Eightfold Real Estate Capital

7.35

7,714.70

15.69

4.00

4,107.41

10.23

Prime Finance

7.15

6,640.07

13.51

3.00

2,366.14

5.89

LNR Securities

3.75

3,560.19

7.24

2.50

2,147.04

5.35

Argentic Securities

4.00

3,181.30

6.47

7.00

5,776.44

14.39

LoanCore Capital

3.00

2,279.91

4.64

1.00

1,006.08

2.51

Ellington Management

1.75

1,826.92

3.72

1.00

901.17

2.24

3650 REIT

2.00

1,629.67

3.32

0.00

0.00

0.00

Seer Capital

1.00

1,302.47

2.65

0.00

0.00

0.00

Barings

0.00

0.00

0.00

3.00

3,714.51

9.25

Torchlight Investors

0.00

0.00

0.00

2.00

2,231.34

5.56

Stream Asset Management

0.00

0.00

0.00

0.50

520.57

1.30

Total

52.00

49,153.96

 

44.00

40,151.26

 

 

While the horizontal risk-retention piece of a conduit deal typically comprises its B-piece, some transactions are structured with vertical or a hybrid risk-retention scheme, which combines both a vertical and horizontal piece. In those cases, the buyer of the B-piece is free to leverage some of its investment - the piece not subject to the risk retention rules - hedge it or sell it.

Rialto, meanwhile, was well behind KKR in a ranking of buyers of horizontal risk retention pieces, with a 16.3 percent share of that market. It also took down nearly $30 million of bonds that comprised the vertical risk retention strip of three deal structured with hybrid risk retention. In each case, it also took down the horizontal risk-retention strips. LNR Partners also took down both vertical and horizontal pieces of four conduit deals.

A total of six of KKR's deals had a horizontal structure and the remainder had a hybrid structure, which became extremely popular in the fourth quarter. Of the 17 conduits that priced during the final three months of the year, 12, or 71 percent of the deal total, had hybrid structures, two had horizontal structures and three had vertical structures. In contrast, for the full year, 24 deals, or 46 percent of the year's total, had hybrid structures.

Buyers of CMBS Conduit Horizontal Risk-Retention Pieces

 

2019

2018

Investor

# Deals

Vol mln$

Mkt Shr%

# Deals

Vol mln$

Mkt Shr%

KKR Real Estate Credit

10.00

755.03

31.09

10.00

770.20

30.00

Rialto Capital Advisors

8.00

395.70

16.29

7.00

425.68

16.58

Argentic Securities

4.00

308.45

12.70

7.00

537.45

20.93

Eightfold Real Estate Capital

4.35

230.16

9.48

2.00

98.38

3.83

Prime Finance

2.65

204.50

8.42

3.00

232.19

9.04

LoanCore Caital

3.00

188.97

7.78

1.00

97.29

3.79

Starwood Property Trust

5.00

175.71

7.24

2.00

54.79

2.13

3650 REIT

2.00

169.95

7.00

0.00

0.00

0.00

Barings

0.00

0.00

0.00

3.00

351.35

13.69

 

39.00

2,428.47

 

35.00

2,567.33

 

Risk retention rules, adopted in 2016, require issues to keep a 5 percent piece of every CMBS deal, either through a vertical or horizontal scheme, or a combination of the two. If a vertical structure is picked the issuer retains 5 percent of every bond class, by face value. Issuers can also adopt a horizontal structure, selling off the bottom 5 percent of a deal, by market value, to a third party. Or they can combine the two strategies.

Typical CMBS conduit deals typically have 80 percent of their bonds rated AAA, which means retainers of vertical slices aren't retaining quite the same level of risk as those retaining horizontal slices.

The hybrid risk-retention structure became the most popular in the conduit world last year, with 24 deals totaling $23.2 billion. The remaining deals were structured nearly equally with horizontal or vertical schemes.

CMBS Risk-Retention Structures - 2019

 

Total

Conduit

Single-Borrower

Other

 

#Deals

Bal$mln

MktShr%

#Deals

Bal$mln

MktShr%

#Deals

Bal$mln

MktShr%

#Deals

Bal$mln

MktShr%

Horizontal

50

38,728.37

40.29

15

11,475.44

23.35

32

26,178.13

57.24

3

1,074.80

87.28

Vertical

65

34,165.84

35.55

13

14,457.23

29.41

51

19,551.91

42.76

1

156.70

12.72

Hybrid

24

23,221.28

24.16

24

23,221.28

47.24

0

0.00

0.00

0

0.00

0.00

Total

139

96,115.50

 

52

49,153.96

 

83

45,730.04

 

4

1,231.50

 

On the single-borrower side, the vertical scheme remains the most popular, by

On the single-borrower side, the vertical scheme remains the most popular, by number of deals. But because of a few massive transactions that had a horizontal structure, the horizontal scheme was adopted for 57.2 percent of the year's single-borrower issuance.

The most active retainer of vertical risk in CMBS deals was Morgan Stanley. It had retained $307.77 million of bonds from 9.2 transactions. As is typically the case when multiple issuers are involved, it would split risk retention duties with other issuers on deals.

Most Active Retainers of Risk in CMBS Deals - 2019
  Horizontal Vertical Total
Risk Retainer #Deals Amt$mln #Deals Amt$mln #Deals Amt$mln
KKR Real Estate Credit 13 844.78     13 844.78
Prima Capital 7 488.6     7 488.6
Rialto Capital Advisors 8 395.7 0.64 29.97 8.64 425.67
LNR Securities/Starwood 5 175.71 0.14 142.89 5.14 318.6
Argentic Real Estate Finance 4 308.45     4 308.45
Morgan Stanley     9.2 307.77 9.2 307.77
Bank of America     8.03 271.84 8.03 271.84
Wells Fargo Bank     5.81 240.8 5.81 240.8
Eightfold Real Estate Capital 4.35 230.05     4.35 230.05
Deutsche Bank     6.9 212.57 6.9 212.57
LoanCore Capital 3 188.97 2.23 18 5.23 206.97
Prime Finance 2.65 204.5     2.65 204.5
Oaktree Capital Management 4 181.95     4 181.95
3650 REIT 2 169.95     2 169.95
KSL Capital Partners 3 156.75     3 156.75
Citigroup     6.34 145.67 6.34 145.67
Canada Pension Plan Investment Board 2 121.25     2 121.25
Goldman Sachs     5.08 99.65 5.08 99.65
JPMorgan Chase Bank 2 31.37 3.7 54.97 5.7 86.34
ReadyCap 2 84.78     2 84.78
Natixis     5.8 71.33 5.8 71.33
Apollo Commercial Real Estate Finance 2 68.21     2 68.21
Blackrock 2 65     2 65
Barclays Capital     3.35 62.65 3.35 62.65
KeyCorp     4 59.38 4 59.38
Shelter Growth Capital Partners 3 51.51     3 51.51
Western Asset Management 1 45.3     1 45.3
Societe Generale     3.5 38.61 3.5 38.61
Blackstone Group 1 30     1 30
DoubleLine Capital 2 20.56     2 20.56
Square Mile Capital Management 1 15.25     1 15.25
Credit Suisse     1 14.75 1 14.75
BMO     0.2 2.14 0.2 2.14

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





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Data Digest

 

CMBS DELINQUENCY VOLUME

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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

 

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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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