Morgan Stanley later this month is expected to close the first European CRE CDO, to be managed by BlackRock Financial Management.
The 343 ($435 million) deal is the first in a string of expected CRE CDO issuance in Europe. The notes, maturing in 2042, carry Derivative Fitch and Moody's Investor's Service ratings. The transaction is backed primarily by CMBS and subordinate real estate debt being managed by BlackRock Financial Management.
Around 90% of the issuance proceeds will be invested at closing, with the remainder targeted for the deal's first 3.5 months. Morgan Stanley is the sole lead manager for the deal, which had not priced as of press time. Blackrock will retain the deal's equity.
The deal signifies BlackRock's extending its substantial U.S. CRE CDO platform into Europe. Basel II-related changes in the way commercial real estate assets are accounted for on bank balance sheets are expected to spur further CRE CDO securitization.
Other players are already joining the fray. For instance, Wachovia is expected to broaden its CRE CDO issuance into Europe. Furthermore, Investec in mid-September announced it was preparing a GBP200 million ($378.4 million) CRE CDO, and several more deals are expected, sources said.
BlackRock in late September merged with Merrill Lynch, but the CDO will initially be managed from New York, according to Derivative Fitch.
BlackRock plans to begin its CRE debt platform by building upon Merrill's existing real estate equity operations in Europe. As of September, the asset manager had issued eight U.S. CRE CDOs.
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