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Friday, 05 April 2019

KKR Keeps CMBS Risk-Retainer, Conduit B-Piece Crowns in 1Q

KKR Real Estate Credit Opportunity Partners continued to be the most-active retainer of risk in the CMBS market during the first quarter. The affiliate of mortgage REIT KKR Real Estate Finance Trust Inc. took down the horizontal risk slices of three conduit transactions. Those bonds had a face value of $220.6 million, but were acquired at substantial discounts.

The B-piece buyer ranking table has been edited to correct data for Prime Finance, which was overstated, and Ellington Management, which was understated.

Commercial Real Estate Direct Staff Report

KKR Real Estate Credit Opportunity Partners continued to be the most-active retainer of risk in the CMBS market during the first quarter.

The affiliate of mortgage REIT KKR Real Estate Finance Trust Inc. took down the horizontal risk slices of three conduit transactions. Those bonds had a face value of $220.64 million, but were acquired at substantial discounts.

Risk-retention rules, which were put into place at the end 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.

As a result, those retaining horizontal strips generally buy more bonds per deal than do those retaining vertical strips.

Nonetheless, Grass River Real Estate was just behind KKR in a ranking of risk retainers. It held on to the bottom bond classes of a conduit deal to which its affiliate, 3650 REIT, had contributed 40 percent of its collateral.

Citigroup and Bank of America both took down only vertical strips - which include bonds with the highest possible ratings - of seven deals. Citi's take amounted to $78.1 million, while BofA's was $67.8 million. Their deals all were single-borrower transactions.

Most-Active Retainers of CMBS Risk 1Q2019

Investor

Vert#

V Amt$mln

Hor#

H Amt$mln

Total#

Tot Amt$mln

KKR Real Estate Credit Oppy

   

3

220.64

3

220.64

Grass River Real Estate

   

1

83.34

1

83.34

Citigroup

7

78.13

   

7

78.13

LoanCore Capital

   

1

73.54

1

73.54

Bank of America

7

67.80

   

7

67.80

Rialto Capital Management

   

1

65.90

1

65.90

Deutsche Bank

6

63.28

   

6

63.28

Morgan Stanley

3

52.26

   

3

52.26

Oaktree Capital Management

   

2

49.14

2

49.14

Barclays Capital

5

46.26

   

5

46.26

Western Asset Management

   

1

45.30

1

45.30

ReadyCap

   

1

37.92

1

37.92

JPMorgan Chase Bank

2

27.26

   

2

27.26

Wells Fargo Bank

2

27.02

   

2

27.02

Goldman Sachs

1

26.50

   

1

26.50

CPPIB

   

1

25.75

1

25.75

Prima Capital

   

1

22.70

1

22.70

Apollo

   

1

16.78

1

16.78

Natixis

1

9.95

   

1

9.95

Societe Generale

1

9.38

   

1

9.38

KeyBank

2

8.60

   

2

8.60

Source: Commercial Real Estate Direct

When deals compliant with risk-retention rules started getting issued two years ago, the thinking was that eventually the industry would migrate to the horizontal structure, where actual risk is held by investors comfortable with it. But initially, issuers would dominate the risk space by retaining vertical strips.

KKR also, not surprisingly, took top honors in a ranking of B-piece buyers. It generally buys B-pieces that are structured as deals' horizontal risk-retention pieces. Those are restricted from being leveraged, sold off or hedged against for at least five years, and likely the life of a deal.

 

1Q2019

1Q2018

Bpce Buyer

#Deals

Vol

Mkt Shr

#Deals

Vol

Mkt Shr

KKR

3

2,213.34

25.44%

3

2,871.16

29.84%

Prime Finance

1.75

1,579.20

18.15%

0

0

0

Eightfold Real Estate Capital

1

1,256.00

14.44%

1

1,166.38

12.12%

Ellington Management

1.25

1,112.19

12.79%

0

0.00

0.00%

Rialto Capital Management

1

934.87

10.75%

2

1,727.03

17.95%

Grass River Real Estate

1

829.25

9.53%

0

0.00

0.00%

LoanCore Capital

1

774.09

8.90%

0

0.00

0.00%

Barings

0

0

0.00%

1

1,507.01

15.66%

Torchlight Investors

0

0

0

1

1,287.15

13.38%

LNR Partners

0

0

0

1

1,062.38

11.04%

TOTALS 

10

8,698.94

 

9

9,621.11

 

Source: Commercial Real Estate Direct

In 2017, 44.4 percent of the CMBS volume was structured with a vertical risk-retention scheme. That shrunk to 33.9 percent last year. But during the first quarter, it spiked to 50 percent. However, the period could be an anomaly as volume was down 15 percent from last year.

Risk-Retention Structures

 

1Q2019

FY2018

FY2017

 

#Deals

Bal $mln

Shr

#Deals

Bal $mln

Shr

#Deals

Bal $mln

Shr

Horizontal

12

7,336.48

44.37%

63

40,037.67

52.60%

54

35,515.02

41.11%

Vertical

16

8,265.09

49.98%

47

25,796.48

33.89%

56

38,324.00

44.36%

Hybrid (L-shaped)

1

934.87

5.65%

11

10,276.70

13.50%

13

12,551.41

14.53%

TOTAL

29

16,536.44

 

121

76,110.85

 

123

86,390.43

 

And while conduit issuance was off 10 percent from last year, 40 percent of the volume was comprised of deals under the BANK and Benchmark shelves, whose issuers - Wells Fargo Securities, BofA Merrill Lynch, Morgan Stanley, Citibank, Deutsche Bank and JPMorgan Chase Bank - have fashioned the deals so they regularly take down their vertical risk pieces.

In addition, 12 of the 18 single-borrower deals so far this year were structured with vertical schemes.

CMBS Risk Retention Structures 1Q2019

 

Total

Conduit

Single-borrower

Other

 

#Deals

Bal $mln

Shr

#Deals

Bal $mln

Shr

#Deals

Bal $mln

Shr

#Deals

Bal $mln

Shr

Horizontal

12

7,336.48

44.37%

5

3,816.68

43.88%

6

3,120.60

41.95%

1

399.2

100%

Vertical

16

8,265.09

49.98%

4

3,947.39

45.38%

12

4,317.70

58.05%

0

0

 

Hybrid (L-shaped)

1

934.87

5.65%

1

934.87

10.75%

0

0

0.00%

0

0

 

TOTAL

29

16,536.44

 

 

10

8,698.94

 

18

7,438.30

 

1

399.2

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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