Three CMBS conduits faced good demand in the market last week (see p. 8), as the GMAC Commercial Mortgage Securities Inc. deal, underwritten by Deutsche Bank Alex. Brown and Goldman Sachs & Co., priced on decent terms, despite the inclusion of $89.5 million worth of Freddie Mac Multifamily Gold Participation Certificates as collateral, which presented some risk of lack of liquidity in that particular tranche.

"The reasons why securities with significant multifamily concentration have not traded better than other transactions have been concerns by investors that a large GSE purchase will impair the liquidity of the issue and concerns that all of the multifamily cashflows may have been allocated to the classes bought by the GSEs," said Michael Youngblood, managing director of real estate at Banc of America Securities. "This would thereby undermine the quality of the cashflows available to pay the other classes, so there is a liquidity concern and credit diminution concern."

However, the deal was received warmly, pricing on par with other recent issues.

As market observers were waiting for the GMAC deal to price, they were questioning whether the AAA tranche would be sold to an agency or not. A Freddie Mac Gold Participation Certificate made up 11.6% of the trust collateral. The presence of the certificates improve the deal's residential component and add a high quality credit to the deal, because of its triple-A status, sources said.

Whether or not a tranche with a residential component is sold back to a GSE is a rather political issue, observers noted. The GSEs can only buy residential product.

"Investors sometimes complain that sometimes when the agencies buy that triple-A tranche, there's less liquidity in the triple-A because it doesn't trade," said one CMBS analyst. "But I think that in this case, it should be a plus, because it is a good thing. But I don't know if agencies will buy this or not."

While it was not clear at press time whether a GSE bought the triple-A tranche, clearly investors responded favorably to the Freddie Mac certificates in the collateral pool.

"Obviously when you have a triple-A guarantee on even part of one's risk, it has to be regarded favorably," Youngblood said.

The participation certificate represents an undivided beneficial ownership interest in a pool of two loans secured by five multifamily properties. Under the terms of the certificate, Freddie Mac guarantees timely payment of interest, timely payment of scheduled principal, and ultimate payment of principal by the specified final payment date.

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