Though the commercial mortgage-backed securities pipeline was expected to dry up toward year-end, two deals - a conduit from First Union Capital Markets/Merrill Lynch & Co. and a credit tenant lease deal from GMAC-RFC/Deutsche Bank Alex. Brown/Goldman, Sachs & Co. - are launching early this week, surprising many CMBS market observers who expected the deals to come to market in first quarter 2000.

The First Union conduit, for approximately $1 billion, was already being talked about late last week, and market sources said that the company was putting out reds for the forthcoming transaction on Monday.

"We're putting the deal together but it hasn't launched yet," said Tim Ryan, a director in First Union's commercial real estate department. "We're trying to get everything ironed out to print the reds, and it should launch early next week."

The deal was originally slated for December, but was then pushed back to January because of Y2K. "But we figured, if the market prevails and it makes sense, we're doing it this year," Ryan added.

Several market observers heard a rumor that all of the subordinate pieces of the conduit are pre-sold to one account, but this could not be confirmed by press time.

Additionally, the deal is said to have a high percentage of multifamily loans, although there will be no "carve-out." A carve-out has occurred in many recent transactions that have a large proportion of multifamily. For these transactions, a pool is created within the deal that is just for this multifamily portion. A triple-A security is created that is the first priority of that multifamily pool, and that meets the government agency's requirements for multifamily.

This "sub-pool" of multifamily loans has been seen quite a bit in recent deals, and was considered for the First Union deal, although apparently this will not occur. These carve-outs have been somewhat controversial because they bring into question whether or not the other triple-A bonds are as liquid as the multifamily concentrations. Usually, when these carve-outs occur, a huge block of the deal would be presold to a GSE.

A $386 million credit tenant lease deal from GMAC and underwritten by Deutsche Bank and Goldman seemed to capture the market's attention last week as well, even before it was launched. The transaction, which is made up of many short-term loans, will have a wrap from MBIA to ensure triple-A status.

"This is kind of atypical for this sort of deal," said one MBS portfolio manager.

The triple-A piece of the credit tenant lease deal has a maturity of 4.6 years, and is being price talked between 115 and 120 basis points over Treasurys, sources said.

According to market participants, the deal will also be unusual for other reasons. Whereas most CTL deals have a very high percentage of healthcare or drugstore collateral, the present transaction will have none.

Moreover, 73% of the credits are investment-grade, and the collateral will be roughly 41% office, which is unusual, considering that most CTL deals usually have a huge retail component.

"Some of the collateral for these credit tenant lease deals had some downgrades and there is sometimes a rating story," said one CMBS trader. "A lot of the loans we have in many deals have Rite Aid as a tenant. But particularly in CTL deals, Rite Aid may be a concentration of between 10% to 25%. So you get more leveraged in terms of the effect of one tenant going bad."

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