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Friday, 07 July 2017

Rialto Again Tops Ranking of CMBS Conduit B-Piece Buyers

Rialto Capital Management was by far the most-active B-piece buyer of CMBS conduit transactions during the first half, investing in seven deals totaling $6.3 billion, or 30.4 percent of the total issuance. But only three of its investments are subject to trading, hedging and leveraging restrictions imposed by risk-retention rules.

Commercial Real Estate Direct Staff Report

Rialto Capital Management was by far the most-active B-piece buyer of CMBS conduit transactions during the first half, investing in seven deals totaling $6.3 billion, or 30.4 percent of the total issuance.

It was followed by KKR Real Estate Finance, which invested in five deals totaling $4.7 billion, or 23 percent of the conduit issuance so far this year.

The dynamics in the B-piece market have changed as a result of risk-retention rules that went into effect late last year. Those rules require that issuers keep a 5 percent vertical slice of every CMBS transaction, or sell off a 5 percent horizontal slice, by market value. They also could adopt a hybrid approach, keeping a vertical slice and selling a horizontal slice. The rules restrict investors from trading out of their positions within five years, leveraging or hedging their positions.

While Rialto, a unit of Miami homebuilder Lennar Corp., bought the B-pieces of seven conduit deals, only three of them had horizontal or hybrid risk-retention structures. Those deals totaled $2.9 billion, with Rialto buying a total of $226.5 million of bonds - which it must keep for at least five years. It also retained a 5 percent vertical risk-retention slice of two deals that totaled $1.5 billion.

Most-Active CMBS B-Piece Buyers
Private-Label Issuance

1H2017

1H2016

B-Piece Investor

#Deals

Bal $mln

Mkt
Shr%

#Deals

Bal
$mln

Mkt
Shr%

Rialto Capital Management

7

6,282.93

30.41

7

6,009.44

32.48

KKR Real Estate Finance

5

4,747.28

22.98

1

1,026.80

5.55

Eightfold Real Estate Capital

2

2,042.35

9.88

4

3,690.60

19.95

Argentic Securities

2

1,724.78

8.35

-

-

-

Prime Finance

1

1,154.65

5.59

1.4

1,029.12

5.58

LNR Partners

1

1,092.98

5.29

0.6

429.38

2.32

MassMutual

1

1,043.45

5.05

-

-

-

BlackRock Realty Advisors

1

977.09

4.73

1

892.80

4.83

NorthStar Real Estate Income Trust

1

958.99

4.64

-

-

-

C-III Capital Partners

1

637.56

3.09

1

955.65

5.17

Torchlight Investors

-

-

-

2

1,518.11

8.21

Seer Capital Management

-

-

-

2

1,509.75

8.16

Raith Capital Partners

-

-

-

1

770.97

4.17

Ellington Management

-

-

-

1

666.61

3.60

TOTAL         

22

20,662.06

 

22

18,499.23

 

Eight of the year's conduit deals, totaling $6.89 billion, were structured with a vertical risk-retention slice. In those transactions, the issuers typically kept 5 percent of each of the deals' bonds, by par value. Five deals totaling $4.97 billion were structured with horizontal risk-retention pieces. In those cases, investors, typically B-piece buyers, bought bonds equal to 5 percent of the deals' market value. And nine deals totaling $8.8 billion had a hybrid structure. In those cases, issuers retained anywhere from 1.9 percent of deals' bonds, while a B-piece investor took anywhere from 3.6 percent to 8.3 percent of a subordinate horizontal slice.

CMBS Risk-Retention Structures

 

Horizontal

Vertical

Hybrid (L-Shaped)

Deal Type

#Deals

Bal $mln

Shr%

#Deals

Bal $mln

Shr%

#Deals

$Bal

Shr%

Conduit

5

4,971.91

24.06

8

6,889.90

33.35

9

8,880.25

42.59

Single-borrower

13

7,335.60

60.53

9

4,783.75

39.47

0

0

0

Other

3

1,309.64

100.0

           

Excluding the vertical retention slices of deals, KKR Real Estate Finance took on the biggest risk exposure to CMBS during the half, retaining horizontal slices of five conduit transactions amounting to $307.79 million of face value.

Rialto was just behind it, buying a total of $226.5 million of bonds, comprising the horizontal risk pieces of three conduit deals. It also effectively retained the risk of two other deals, but that involved it buying vertical strips, totaling $75 million of bonds.

Buyers of Horizontal Risk-Retention Pieces of CMBS - 1H2017

Investor

#Deals

Bal $mln

MktShr%

KKR Real Estate

5

307.79

20.68

Rialto Capital Advisors

3

226.48

15.22

Argentic Securities

1

113.35

7.62

LNR Partners

1

112.03

7.53

MassMutual

1

105.70

7.10

NorthStar Real Estate Income Trust

1

102.61

6.90

Prima Capital

4

100.18

6.73

OCM Credit (Oxford Properties Group)

2

100.06

6.72

Blackstone Group

2

90.25

6.06

Prime Finance

1

72.97

4.90

Lone Star

1

68.29

4.59

BlackRock Realty Advisors

1

39.31

2.64

Eightfold Real Estate Capital

1

29.12

1.96

Square Mile Capital

1

20.00

1.34

Buyers of horizontal strips of CMBS deals have been pricing their investments to yield anywhere from 13.9 percent to just more than 25 percent, depending on how high up the capital stack they bought. For instance, MassMutual, which bought the most junior $105.65 million of bonds from JPMDB Commercial Mortgage Trust, 2017-C5, priced them to yield 13.9 percent. The securities it bought were rated as high as BBB-.

And Eightfold Real Estate Capital, which bought 3.59 percent of the most subordinate bonds of CSAIL Commercial Mortgage Trust, 2017-C8, priced them to yield just more than 25 percent. But it only bought $29 million of bonds - the deal's unrated and B- classes - which amounted to roughly 0.8 percent of the deal's market value. Natixis had purchased a 4.22 percent vertical strip of that deal, which was structured with a hybrid risk-retention scheme.

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





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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 - 2016
Investment Bank #Deals Vol$mln MktShr%
JPMorgan Securities 14.94 10,350.16 15.14
Deutsche Bank 14.21 9,926.60 14.52
Wells Fargo Securities 13.36 9,513.96 13.92
Citigroup 10.87 8,061.79 11.80
Goldman Sachs 10.05 7,563.72 11.07

 

MOODY'S/RCA CPPI

 

cppichart FP

 

 

CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2016
Lender #Loans Vol$mln MktShr%
JPMorgan Chase Bank 133.67 8,670.33 13.34
Goldman Sachs 156.20 7,418.37 11.41
Deutsche Bank 178.17 6,510.75 10.02
Citigroup 184.41 5,512.20 8.48
Morgan Stanley 113.18 4,130.53 6.35

 

 

 

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