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Friday, 04 October 2019

Rialto Capital Continues Conduit B-Piece Dominance; KKR Tops All Risk Retainers

Rialto Capital Advisors bought the B-pieces of four CMBS conduit transactions during the third quarter, accounting for nearly one-third of the new-issue B-piece market. But KKR Real Estate Finance Trust remains the most active investor in conduits' horizontal risk slices. It invested $523.8 million in seven conduit deals. That's nearly double the $270.6 million that its nearest rival, Rialto, invested.

Commercial Real Estate Direct Staff Report

Rialto Capital Advisors bought the B-pieces of four CMBS conduit transactions during the third quarter, accounting for nearly one-third of the new-issue B-piece market.

That kept the Miami investment manager, which was acquired by Stone Point Capital late last year, comfortably at the top of a ranking of conduit B-piece buyers for the year. It's invested in the B-pieces of eight conduits totaling $8.2 million through September, meaning it has bought into a quarter of the conduit issuance so far this year. Well behind it were KKR Real Estate Credit, which so far this year has invested in seven deals totaling $6.1 billion, and Eightfold Real Estate Capital, which so far has invested in five deals totaling $5.2 billion, thanks to three deals it was involved in during the third quarter.

Top Buyers of CMBS Conduit B-Pieces

 

3Q2019

3Q2018

B-Pce Buyer

#Deals

Bal $mln

MktShr%

#Deals

Bal $mln

MktShr%

Rialto Capital Advisors

4

4,202.31

30.02

3

2,907.58

32.59

Eightfold Real Estate Capital

3

3,000.31

21.43

0

0.00

0.00

KKR Real Estate Credit

2

2,242.30

16.02

3

2,666.85

29.89

Argentic Real Estate Finance

2

1,647.23

11.77

2

1,364.77

15.30

Seer Capital

1

1,302.47

9.30

0

0.00

0.00

LNR Securities

1

802.91

5.74

0

0.00

0.00

Grass River Real Estate Credit Partners

1

800.42

5.72

0

0.00

0.00

Prime Finance*

     

1

1,039.13

11.65

Torchlight Investors

0

0.00

0.00

1

944.19

10.58

TOTALS

 

13,997.95

 

 

8,922.52

 

Missing from the third-quarter's ranking is Prime Finance. The investor participated in the market by investing with LNR Securities in the B-piece of CCRE Commercial Mortgage Securities, 2019-CF2. It bought a minority stake in the $802.91 million deal's most subordinate bonds. But LNR received full credit for the deal. Prime, meanwhile, has participated in seven conduit deals so far this year. However, it has received credit for 4.75 transactions totaling $3.9 billion.

Top Buyers of CMBS Conduit B-Pieces

 

9Mos2019

9Mos2018

B-Pce Buyer

#Deals

Bal $mln

MktShr%

#Deals

Bal $mln

MktShr%

Rialto Capital Advisors

8

8,210.98

25.67

7

6,131.72

21.43

KKR Real Estate Credit

7

6,079.12

19.00

6

5,538.01

19.35

Eightfold Real Estate Capital

5

5,170.49

16.16

2

1,854.58

6.48

Prime Finance

4.75

3,898.73

12.19

3

2,366.14

8.27

Argentic Real Estate Finance

2

1,647.23

5.15

5

4,145.70

14.49

 

Grass River Real Estate Credit Partners

 

2

1,629.67

5.09

0

0.00

0.00

LoanCore Capital

2

1,472.73

4.60

1

1,006.08

3.52

Starwood Property Trust/LNR

2

1,464.88

4.58

1.5

1,254.95

4.39

Seer Capital

1

1,302.47

4.07

0

0.00

0.00

Ellington Management

1.25

1,112.19

3.48

1

901.17

3.15

Barings

0

0.00

0.00

2

2,665.49

9.31

Torchlight Investors

0

0.00

0.00

2

2,231.34

7.80

Stream Asset Management

0

0.00

0.00

0.5

520.57

1.82

 

35

31,988.50

 

31

28,615.75

 

While Rialto was the most-active B-piece buyer in the conduit market, KKR Real Estate Finance Trust was the most-active risk retainer in the business. Every B-piece investment it made was compliant with risk-retention rules, which require that the investment be held for at least five years, and effectively the life of a deal. Such deals also can't be leveraged or hedged against. It invested $523.8 million of capital for the horizontal risk pieces in the seven conduit deals in which it participated. That's nearly double the $270.6 million that its nearest rival, Rialto, invested.

Most-Active Retainers of Risk in CMBS Conduits

Investor

Hor#

Amt$mln

KKR Real Estate Credit

7

523.81

Rialto Capital Advisors

4

270.57

Prime Finance

3

190.45

Argentic Securities

2

173.07

 

Grass River Real Estate Credit Partners

 

2

171.47

Eightfold Real Estate Capital

3

161.46

LoanCore Capital

2

133.76

Starwood Property Trust/LNR

2

56.89

Issuers of CMBS deals, and other structured transactions, must keep a 5 percent piece of every deal they sell. They could keep a vertical slice equal to 5 percent of a deal's face value, or sell off a horizontal slice, equal to 5 percent of a deal's market value. Or they could combine the two, keeping a piece and selling a piece, equaling 5 percent of a deal's value.

Of the 35 conduits that priced this year through the end of September, 25 had either a horizontal or hybrid risk-retention structure. The rest had vertical structures and their risk-retention pieces were acquired by their issuers. Vertical risk strips, however, are largely made up of deals' highest rated securities, which have very little risk of default.

Separately, conduit lenders generated hefty profits during the latest quarter. Deals structured with horizontal or hybrid risk retention had a weighted average profit margin of 5.73 percent, with a high of 8.6 percent for BBCMS Mortgage Trust, 2019-C4, which priced on Aug. 9, and had a relatively high weighted average coupon, and a low of 3.22 percent for GS Mortgage Securities Corp. II, 2019-GC42, which priced on Sept. 16. It had a WAC of only 3.76 percent.

Profitability of 3Q2019 CMBS Conduit Transactions

Deal Name

Bal $mln

Proceeds $mln

Margin

WAC %

ssAAAPx

10-yrT %

Morgan Stanley Capital I Inc., 2019-H7

746.99

783.51

4.89%

4.4207

89

2.09

Benchmark Mortgage Trust, 2019-B12

1,181.87

1,246.13

5.44%

4.1404

80

2.05

Citigroup Commercial Mortgage Trust, 2019-GC41

1,276.63

1,344.77

5.34%

3.8657

92

1.75

Wells Fargo Commercial Mortgage Trust, 2019-C52

900.24

962.40

6.91%

4.3990

93

1.75

CD, 2019-CD8

811.12

869.61

7.21%

4.2661

100

1.74

BBCMS Mortgage Trust, 2019-C4

937.34

1,018.07

8.61%

4.4326

100

1.74

CSAIL Commercial Mortgage Trust, 2019-C17

800.42

837.90

4.68%

4.3056

99

1.81

GS Mortgage Securities Corp. II, 2019-GC42

1,060.43

1,094.52

3.22%

3.7600

94

1.84

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

 

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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