Several recent and pending commercial mortgage-backed securities transactions exemplify how effective this market has become. The latest is a $502 million transaction by Challenger International, a financial services company which specializes in managing retirement income. Challenger buys property to service its clients' annuity payments, and has a A$2.25 billion portfolio, spread between Australia and Britain (the company is about to enter the U.S. commercial real estate market). The deal, arranged and lead managed by Westpac Institutional Bank, is based on a portfolio of Australian properties independently valued at A$800 million and valued by Standard & Poor's at A$680 million.

One of the innovative features of the transaction is that the underlying collateral of 25 properties has been divided into four "silos." This reflects, firstly, the fact that life insurance companies in Australia are not allowed to borrow money to invest and must, therefore, invest in assets that are already geared. In Challenger's case, this means property trusts. Secondly, life companies are unable to invest more than 5% of their total assets in any single investment and still receive full regulatory treatment for their insolvency requirements (Challenger is a life insurance company in name only; it needs the status in order to be able to sell annuity products). The company has around A$1.6 billion in assets, and so is constrained from investing more than A$80 million in any one asset or property trust. The silo structure helps to overcome this limitation for the purposes of the securitization.

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