More non-traditional CMBS deals are expected to hit the market including non-performing loan deals and CLO transactions; and the market could see the return of the small-loan CMBS deals.
Trepp analysts reporting on day two of the Commercial Real Estate Finance Council’s annual industry conference in Miami noted that the first-ever NPL deal issued by Rialto Capital Management, was fully retired on Tuesday. That deal, $132 million CMBS deal called Rialto Capital, Series 2012-LT1, was issued in March 2012.
The transaction was marketed by JPMorgan Chase and Wells Fargo & Co. The securitization is backed by 271 subperforming and nonperforming mortgages securing 266 properties, 11 unsecured loans, and 38 properties acquired at acquisition or through foreclosure.
Trepp noted that when the bonds were first being marketed in early 2012, the most optimistic scenario had the bonds retiring in December 2013. “It turns out the assets were resolved in much shorter order than anyone originally expected,” said Trepp.
Analysts at Kroll Bonds Ratings, who also reported from the conference, said that there is concern over investors treating NPLs as generic; yet the deals’ success is very dependent on its sponsorship component. “One panelist noted that the fact that one such deal was oversubscribed within an hour could be a sign of a ‘dangerous market’ where people are willing to buy a concept over collateral.”
The re-emergence of CRE CDOs was also a topic that the analysts said was widely discussed throughout the Tuesday panels at the CREFC conference. Kroll said that one issuer noted that the approach his firm took in marketing one of the CDOs issued this year was closer to the process taken with B pieces, with a three week due diligence period for investors.
The panelists also noted that the addition of interest coverage (IC) and overcollateralization (OC) payment tests have helped improve the product over its 1.0 version.
But the market didn’t look keen to return to a world of B-notes securitization. Kroll said that one issuer said that under risk retention, B piece CDOs would likely be prohibited.