Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Thursday, 10 October 2019

KKR Dominates All CMBS Risk Retainers So Far This Year

KKR Real Estate Credit has been absolutely dominating the business of retaining the risk pieces of CMBS transactions. It's retained the horizontal risk classes of 10 deals totaling $613.8 million, thanks to its dominance in the conduit world. Well behind it, with $309.29 million of volume, is Rialto Capital Advisors.

Commercial Real Estate Direct Staff Report

KKR Real Estate Credit has been absolutely dominating the business of retaining the risk pieces of CMBS transactions.

It's retained the horizontal risk classes of 10 deals totaling $613.8 million, thanks to its dominance in the conduit world. It retained the bottom classes of seven conduit deals valued at $523.81 million. Five of those were structured with horizontal risk retention and two had hybrid, or L-shaped, retention structures, where KKR took down 5.6 percent or 6.8 percent of the deals' most subordinate bonds, by par value, and another investor took a vertical strip. Rules require that a 5 percent piece of every structured-finance transaction be retained for at least five years. That can be done through the retention of a vertical slice equal to 5 percent of a deal's par value, or by a horizontal slice equal to 5 percent of its market value, or a combination of both.

KKR also took down the bottom risk classes of three single-borrower deals totaling $89.75 million.

Most-Active Retainers of CMBS Risk - 9Mos 2019

 

Horizontal

Vertical

TOTAL

Risk Retainer

# Deals

Amt $mln

# Deals

Amt $mln

# Deals

Amt $mln

KKR Real Estate Credit

10

613.77

   

10

613.77

Rialto Capital Advisors

4

239.73

3

69.56

7

309.29

Deutsche Bank

   

19

287.90

19

287.90

Citigroup

   

19

236.17

19

236.17

Morgan Stanley

   

11

230.82

11

230.82

Prime Finance

3

190.45

   

3

190.45

Prima Capital

4

176.80

   

4

176.80

Argentic Real Estate Finance

2

174.87

   

2

174.87

3650 REIT

2

169.95

   

2

169.95

Bank of America

   

13

168.57

13

168.57

Goldman Sachs

   

12

163.44

12

163.44

Eightfold Real Estate Capital

3

139.36

   

3

139.36

JPMorgan Chase Securities

2

28.92

8

105.07

10

133.99

LoanCore Capital

2

133.76

   

2

133.76

Wells Fargo Bank

   

8

130.49

8

130.49

Starwood Property Trust/LNR

2

55.66

2

63.49

4

119.15

Oaktree Capital Management

3

106.98

   

3

106.98

Apollo Commercial Real Estate

2

68.21

   

2

68.21

Shelter Growth Capital

3

51.51

   

3

51.51

Barclays Bank

   

6

50.66

6

50.66

Blackrock Financial Management

1

47.50

   

1

47.50

Western Asset Management

1

45.30

   

1

45.30

Natixis

   

4

32.53

4

32.53

Blackstone Group

1

30.00

   

1

30.00

Societe Generale

   

3

28.76

3

28.76

CPPIB

1

25.75

   

1

25.75

DoubleLine Capital

2

20.56

   

2

20.56

ReadyCap

1

19.96

   

1

19.96

KeyBank

   

3

16.44

3

16.44

Cantor Fitzgerald

   

1

7.87

1

7.87

Well behind KKR in a ranking of most-active CMBS risk retainers was Rialto Capital Advisors, which took down $309.3 million of bonds from seven deals.

It too focused on conduit deals, but every one of the four it invested in were structured with hybrid risk retention, meaning it took down only some of each deal's risk, sharing that responsibility with another party, typically the deals' issuers, which took down vertical risk pieces.

The Miami investment manager also took down the vertical risk pieces of two conduit deals. In one of those, UBS Commercial Mortgage Trust, 2019-C17, it bought both a horizontal and vertical piece.

Rules require that risk-retention pieces be held for at least five years. Because of the sequential pay structure of CMBS deals, those who buy vertical pieces could see big chunks of their investments pay off substantially earlier than that. That's most true of many single-borrower deals, whose average lives typically are no more than three to five years. Meanwhile, most of the "risk" bonds they're retaining carry the highest ratings and are considered the least risky.

But those who keep the horizontal slices of deals hold deals' actual risk pieces, as they're the most junior and are designed to absorb any losses that might occur.

CMBS Risk-Retention Structures 3Q 2019

Total

Conduit

Single-borrower

 

#Deals

Bal $mln

Shr %

#Deals

Bal $mln

Shr %

#Deals

Bal $mln

Shr %

Vertical

12

6,003.79

33.00

3

3,720.95

26.58

9

2,282.84

54.38

Horizontal

7

4,362.50

23.98

3

2,447.65

17.49

4

1,914.85

45.62

Hybrid

8

7,829.35

43.03

8

7,829.35

55.93

     

Total

27

18,195.64

 

14

13,997.95

 

13

4,197.69

 

CMBS Risk-Retention Structures 9Mos2019

Total

Conduit

Single-borrower

Other

 

#Deals

Bal $mln

Shr %

#Deals

Bal $mln

Shr %

#Deals

Bal $mln

Shr %

#Deals

Bal $mln

Shr %

Vertical

44

21,961.01

38.18

10

10,742.14

33.58

33

11,062.17

44.29

1

156.70

28.19

Horizontal

37

24,414.77

42.45

13

10,103.44

31.58

23

13,912.13

55.71

1

399.20

71.81

Hybrid

12

11,142.91

19.37

12

11,142.91

34.83

           

Total

93

57,518.69

 

35

31,988.50

 

56

24,974.30

 

2

555.90

 

Meanwhile, a growing number of conduit deals now are being structured with hybrid, or L-shaped, risk retention. So far this year, a dozen such deals have had that structure, up from seven during the same period last year. And in a few deals, the buyer of the horizontal slice also bought the vertical slice.

That's exactly what happened with BBCMS 2019-C4. Rialto bought a 4.23 percent vertical slice of the $937.34 million deal, which included a 70 percent concentration of bonds with the highest possible ratings. Assuming those bonds trade at or near par, Rialto paid roughly $40 million. And it made a $7.9 million investment to buy the deal's most subordinate bonds, which had a face value of $32.54 million.

If that deal solely had a horizontal retention structure, Rialto likely would have had to buy more than 10 percent, or $94 million of the deal's bonds. Comparable bonds typically have traded for about 43 percent of par, or $37.6 million. While that would result in a smaller outlay, that investment would not have included bonds with the highest possible ratings.

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.





weekly-call-to-action

“The Weekly”

“The Weekly” is Commercial Real Estate Direct’s PDF newsletter, sent to subscribers every Friday morning. With over 100 news stories published on Commercial Real Estate Direct each week, “The Weekly” features the top stories in commercial real estate that industry participants need to know first. “The Weekly” also contains:

  • Breaking mortgage, CMBS, and REIT news

  • Quarterly league tables with rankings of B-piece buyers, book runners, and lenders

  • Industry moves and changes in “The Insider“

Data Digest

 

CMBS DELINQUENCY VOLUME

dqdataFP1

 

CMBS SPECIAL SERVICING VOLUME

sschartfp

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

AAAspreads

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

 

 

 

REITCafe

  • Challenging Retail Environment Weights on REITs
    Mixed economic news is weighing on retail markets, pushing REIT performance down in 2015. This week, the National Retail Federation announced that back-to-school spending is expected to be down 9.3% in 2015. This news came on the heels of a report from the Commerce Department stating that retail sales declined 0.3%...
     
  • US REITs Feeling Effects from Turmoil in Greece and China
    International economic forces have taken center stage this week, affecting both US stock markets and REITs. The crash in the Chinese stock market and ongoing concerns about the future of Greece in the eurozone drove markets down during the first half of the week. REITs fared better than the overall market...

  • What Does Increased Construction Mean for Apartment REITs?
    REITs so far this year have raised $17.1 billion of capital through the sale of unsecured notes, bringing the total raised over the past two and a half years to just more than $75 billion. That’s more than they raised during the previous five years. The massive volume shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark...
shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark against which most REIT’s price their bonds
warehouse-backstage