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Thursday, 07 February 2019

KKR Edges Out Rialto in B-Piece Buyer Crown; Takes Top Honors Among Retainers of Risk

KKR Real Estate Credit Opportunity Partners was the most active retainer of risk in the CMBS market last year, as a result of its dominance in the conduit market. A ranking of investors that retained the horizontal risk-retention strips of conduit deals had KKR buying $770.2 million of bonds from 10 transactions, or 30 percent of all the horizontal strips from conduits during the year. Argentic Real Estate Finance, meanwhile, accounted for nearly 21 percent of conduits' horizontal risk pieces.

Commercial Real Estate Direct Staff Report

KKR Real Estate Credit Opportunity Partners was the most active retainer of risk pieces from CMBS conduit deals last year.

A ranking of investors that retained the horizontal risk-retention strips of conduit deals has KKR buying $770.2 million of bonds from 10 transactions, or 30 percent of all the horizontal strips from conduits during the year.

It was followed by Argentic Real Estate Finance, with $537.5 million of bonds for a 20.9 percent share, and Rialto Capital Advisors, with a 16.6 percent market share.

Buyers of CMBS Conduit Horizontal Risk-Retention Pieces

 

2018

2017

Investor

#Deals

Vol $mln

Mkt Shr%

#Deals

Vol $mln

Mkt Shr%

KKR Real Estate Credit

10

770.20

30.00

12

947.10

36.14

Argentic Real Estate Finance

7

537.45

20.93

5

515.20

19.66

Rialto Capital Advisors

7

425.68

16.58

6

429.00

16.37

Barings

3

351.35

13.69

2

188.80

7.20

Prime Finance

3

232.19

9.04

2

169.80

6.48

LNR Securities

2

54.79

2.13

1

112.00

4.27

Eightfold Real Estate Capital

2

98.38

3.83

2

59.90

2.29

Jefferies LoanCore

1

97.29

3.79

1

96.20

3.67

NorthStar Real Estate Income Trust

0

0.00

0.00

1

102.60

3.92

TOTAL

35

2,567.33

 

32

2,620.60

 

Only 35 of last year's 44 conduit deals included a horizontal risk-retention strip, with 11 of those having a hybrid, or L-shaped, risk-retention structure. The remaining nine had a vertical structure. Those typically involved the retention by deals' issuers of 5 percent of each of a deal's bond classes.

Because horizontal strips include the first loss pieces of transactions, investors in those are generally assuming the greatest risk in a deal. Of course, they get compensated for that. The risk-retention strips of deals structured solely with a horizontal scheme were priced to yield anywhere from 13.1 percent to 15 percent. Those strips typically amounted to roughly 10 percent of a conduit deal's most junior bonds and last year were priced at between 49 percent and 56 percent of par.

KKR, Argentic and Rialto dominated all retainers of risk, even when single-borrower deals and those structured with vertical schemes are included.

Buyers of CMBS Risk-Retention Pieces

 

Horizontal

Vertical

 

Investor

#Deals

Bal $mln

Bonds Bought

#Deals

Bonds Bought

Total

Total Bonds

     

$mln

 

$mln

#Deals

Bought $mln

KKR Real Estate Credit

10

8,762.05

770.20

0.00

0.00

10.00

770.20

Argentic Real Estate Finance

7

5,776.44

537.45

2.00

84.01

9.00

621.46

Rialto Capital Advisors

7

5,817.97

425.68

2.00

71.06

9.00

496.74

Barings

3

3,714.51

351.35

0.00

0.00

3.00

351.35

BoA Merrill Lynch

0

0.00

0.00

6.34

244.27

6.34

244.27

Prime Finance

3

2,366.14

232.19

0.00

0.00

3.00

232.19

Morgan Stanley

0

0.00

0.00

6.91

229.28

6.91

229.28

Goldman Sachs

0

0.00

0.00

8.70

200.36

8.70

200.36

Prima Capital

6

3,643.77

184.06

0.00

0.00

6.00

184.06

Blackstone

3

2,023.00

166.54

0.00

0.00

3.00

166.54

Citigroup

0

0.00

0.00

5.54

166.44

5.54

166.44

Wells Fargo

0

0.00

0.00

3.73

121.51

3.73

121.51

Eightfold Real Estate Capital

2

2,334.29

98.38

0.49

13.51

2.49

111.89

Barclays Capital

0

0.00

0.00

4.25

110.81

4.25

110.81

Natixis

0

0.00

0.00

3.38

109.91

3.38

109.91

LNR Partners

3

2,067.00

103.71

0.00

0.00

3.00

103.71

Jefferies LoanCore

1

1,006.08

97.29

0.00

0.00

1.00

97.29

Starwood/LNR

3

1,829.99

66.04

0.51

14.06

3.51

80.10

Shelter Growth Capital

2

1,500.00

77.01

0.00

0.00

2.00

77.01

Franklin (KSL Capital Partners)

3

1,091.50

68.54

0.00

0.00

3.00

68.54

Western Asset Mgmt Capital Corp.

1

1,350.00

67.77

0.00

0.00

1.00

67.77

JPMorgan Securities

0

0.00

0.00

1.70

66.95

1.70

66.95

Deutsche Bank

0

0.00

0.00

3.00

66.22

3.00

66.22

Waterfall Asset Management

3

1,305.00

65.65

0.00

0.00

3.00

65.65

PCSD PR Cap IV

2

900.00

48.57

0.00

0.00

2.00

48.57

Brookfield Asset Management

2

938.00

47.14

0.00

0.00

2.00

47.14

CPPIB

1

850.00

42.50

0.00

0.00

1.00

42.50

KSL Capital Partners

2

689.83

34.60

0.00

0.00

2.00

34.60

Oaktree Capital Management

6

1,307.52

19.10

0.00

0.00

6.00

19.10

Oxford Properites

1

382.00

19.10

0.00

0.00

1.00

19.10

Blackrock Realty Advisors

1

314.32

18.10

0.00

0.00

1.00

18.10

Sutherland Asset Management Corp.

1

164.96

14.43

0.00

0.00

1.00

14.43

Angelo, Gordon & Co.

0

0.00

0.00

1.00

12.95

1.00

12.95

DoubleLine Capital

1

180.00

9.00

0.00

0.00

1.00

9.00

KeyCorp

0

0.00

0.00

1.00

6.62

1.00

6.62

Societe Generale

0

0.00

0.00

0.30

4.26

0.30

4.26

Meanwhile, the horizontal pieces of deals structured with hybrid, or L-shaped, risk-retention schemes, which also include a vertical risk-retention strip, were priced last year to yield from 13.6 percent to 19.8 percent. Of course, those yields were highly dependent on how high up the capital stack the retained bonds went. The 19.8 percent yield, for instance, resulted from a horizontal strip amounting to the bottom 3.85 percent of DBGS Mortgage Trust, 2018-1, a $1.07 billion conduit that priced last October. Rialto had purchased the bonds.

Risk-retention rules, which were put into place at the beginning of 2016, require issuers to keep a 5 percent piece of every CMBS deal they sell. They could either keep a vertical slice that would be equal to 5 percent of a deal's face value, sell off a horizontal slice that would be equal to 5 percent of a deal's market value, or they could combine the two strategies.

CMBS Risk-Retention Structures 2018

 

Total

Conduit

Single-borrower

Other

 

#Deals

Bal $mln

Mkr Shr%

#Deals

Bal $mln

Mkt Shr%

#Deals

Bal $mln

Mkt Shr%

#Deals

Bal $mln

Mkt Shr%

Vertical

47

25,796.48

33.89

9

8,768.55

21.84

37

16,895.63

47.38

1

132.30

44.51

Horizontal

63

40,037.67

52.60

24

21,105.77

52.57

38

18,766.94

52.62

1

164.96

55.49

Hybrid

11

10,276.70

13.50

11

10,276.70

25.60

0

0.00

0.00

0

0.00

0.00

TOTAL

121

76,110.85

 

44

40,151.02

 

75

35,662.57

 

2

297.26

 

Overall, issuers favored the horizontal risk-retention structure last year - a total of 63 deals amounting to 52.6 percent of the year's total issuance had such structures. But 47 deals accounting for nearly 34 percent of last year's volume had vertical structures.

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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