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Friday, 06 October 2017

Rialto Remains Most-Active Buyer of CMBS Conduit B-Pieces

Rialto Capital Management continues to rule the CMBS conduit B-piece roost. The Miami investment manager, a unit of homebuilder Lennar Corp., invested in 40 percent of the $12.3 billion of conduit deals issued during the third quarter, bringing its year-to-date activity to 12 deals with a balance of $11.2 billion.

Commercial Real Estate Direct Staff Report

Rialto Capital Management continues to rule the CMBS conduit B-piece roost.

The Miami investment manager, a unit of homebuilder Lennar Corp., invested in 40 percent of the $12.3 billion of conduit deals issued during the third quarter, bringing its year-to-date activity to 12 deals with a balance of $11.2 billion.

No other investor came anywhere near it.

KKR Real Estate Finance Trust invested in two deals during the latest quarter, bringing its year-to-date tally to seven deals totaling $6.4 billion, making it second-most active for the year. And Prime Finance invested in two deals during the quarter, bringing its total for the year to three deals with a balance of $3.2 billion.

The three invested in 62.8 percent of the conduit issuance so far this year.

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

3Q2017

3Q2016

             

B-Piece Investor

#Deals

Bal
$mln

Mkt
Shr%

#Deals

Bal
$mln

Mkt
Shr%

Rialto Capital Management

5

4,904.32

39.76

4

3,378.93

25.78

Prime Finance

2

2,020.36

16.38

1.25

1,242.75

9.48

KKR Real Estate Finance Trust

2

1,607.31

13.03

-

-

-

Argentic Securities

1

1,132.83

9.18

-

-

-

Jefferies LoanCore

1

916.48

7.43

-

-

-

MassMutual

1

811.00

6.58

-

-

-

Elliott Management

0.65

612.03

4.96

-

-

-

LNR Partners

0.35

329.55

2.67

1.76

1,614.59

12.32

Eightfold Real Estate Capital

-

-

-

1

721.16

5.50

Torchlight Investors

-

-

-

1

1,217.49

9.29

Ellington Management

-

-

-

2.25

1,738.23

13.26

Basis Real Estate

-

-

-

1

1,022.88

7.80

BlackRock

-

-

-

1

893.74

6.82

Och-Ziff

-

-

-

0.74

668.56

5.10

C-III Investment Management

-

-

-

1

609.17

4.65

TOTAL

13

12,333.88

 

15

13,107.49

 

The B-piece landscape has changed this year as risk-retention rules went into effect, requiring that issuers retain a 5 percent piece of every deal they issue, or sell a piece equal to 5 percent of a deal's market value to an investor that's restricted from trading the position, or financing it. Issuers also can use a combination of those strategies. That requires relatively patient capital, which could have impacted some players that had been active.

While the traditional players in the space - Rialto, LNR Partners and Eightfold Real Estate Capital - continue to play a role, a cadre of new players have entered. Those include Argentic Securities, an affiliate of Silverpeak Real Estate Partners, a New York investment manager led by Mark Walsh, who previously was co-head of Lehman Brothers' real estate operation. The unit, with backing from Elliott Management Corp., originates conduit loans as well as bridge loans. Elliott, meanwhile, had been relatively active in the B-piece market, but no longer is.

Another new player is Massachusetts Mutual Life Insurance Co.'s Barings unit, which in March made its first B-piece investment. The company last summer had hired Doug Cooper, a long-time B-piece professional, to build out a B-piece investment platform that since has invested in two deals totaling $1.9 billion.

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

9Mos2017

9Mos2016

             

B-Piece Investor

#Deals

Bal
$mln

Mkt
Shr%

#Deals

Bal
$mln

Mkt
Shr%

Rialto Capital Management

12

11,187.25

33.90

11

9,388.37

29.70

KKR Real Estate Finance Trust

7

6,354.59

19.26

1

1,026.80

3.25

Prime Finance

3

3,175.01

9.62

2.95

2,271.86

7.19

Argentic Securities

3

2,857.61

8.66

-

-

-

Eightfold Real Estate Capital

2

2,042.35

6.19

5

4,411.76

13.96

MassMutual

2

1,854.45

5.62

-

-

-

LNR Partners

1.35

1,422.53

4.31

2.06

2,043.97

6.47

BlackRock Realty Advisors

1

977.09

2.96

2

1,786.54

5.65

NorthStar Real Estate Income Trust

1

958.99

2.91

-

-

-

Jefferies LoanCore

1

916.48

2.78

-

-

-

C-III Investment Management

1

637.56

1.93

2

1,564.82

4.95

Elliott Management Corp.

0.65

612.03

1.85

-

-

-

Torchlight Investors

     

3

2,735.60

8.66

Ellington Management

-

-

-

3.25

2,404.84

7.61

Seer Capital Partners

     

2

1,509.75

4.78

Basis Investment Group

-

-

-

1

1,022.88

3.24

Raith Capital Partners

     

1

770.97

2.44

Och-Ziff Capital Investments

-

-

-

0.74

668.56

5.10

TOTAL

35

32,995.94

 

37

31,606.72

 

The vertical risk-retention strategy has become the most popular among issuers, with 36 percent of conduit deals and 59.2 percent of single-borrower deals following it. Meanwhile, just more than 32 percent of conduit deals had hybrid risk-retention structures, where the issuer would retain a vertical slice and sell off a horizontal slice.

Investors buying horizontal slices have been pricing them to yield anywhere from 13.72 percent to 14.75 percent. Those buying the horizontal pieces of deals with a hybrid structure have priced their investments to yield from 17.25 percent to 29 percent. The thickness of their investments, or how high up the capital stack the bonds they buy go, typically plays a major factor in their yield.

CMBS Risk-Retention Structures

 

Horizontal

Vertical

Hybrid (L-Shaped)

Deal Type

#Deals

Bal $mln

Shr%

#Deals

Bal $mln

Shr%

#Deals

$Bal

Shr%

Conduit

11

10,521.17

31.89

13

11,883.99

36.02

11

10,590.78

32.10

Single-borrower

20

10,334.7

40.80

24

14,996.95

59.20

0

0

0

Other

4

1,624.00

80.15

1

402.20

19.85

     

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

 

RCA CPPI

 

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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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