The CRE Finance Council  Europe (CREFC-Europe) launched the Market Principles for Issuing European CMBS 2.0, a consultative document that outlines principles for new CMBS issuance.

The principles’ goal is for confidence to return to the European real estate capital markets. It is also meant to encourage the further development of European CMBS given the urgent need for senior debt in European commercial real estate (CRE) deals. 

Debt origination in the European CRE markets dropped 77% in the last five years with investor demand for new CMBS restrained by legacy issues and the struggling macro-economic environment that has led to considerable pricing volatility.

The document’s new principles are specifically meant to address these various legacy issues, emphasizing areas that have previously created the most controversy. The specific focus of these principles is on transaction structures, counterparties and disclosure of appropriate levels of information.

CREFC Europe specifically addressed key areas, including disclosure requirements for both pre and post issuance information as well as investor reporting, notices, valuations and cashflow models; CMBS structural features; revenue extraction; and the role of the servicer and other counterparties such as trustees and cash managers.

These principles thus highlight the specific lessons that analysts have learned after observing previous European CMBS transactions. They embody the opinions of both historical and active participants in the CRE capital markets, such as issuing banks, investors, borrowers, lawyers, servicers, and trustees. CREFC Europe also considered relevant Bank of England and European Central Bank requirements in the development of their principles.

“The new principles address the weaknesses exposed in historical CMBS structures, such as the need for greater transparency and provide a more equitable and workable framework for future CMBS issuance. The ultimate goal will be to create not only more market liquidity but also assist in laying the foundations for a new capital markets debt model moving forward,” said Nassar Hussain, chair of the CMBS 2.0 committee.

The consultation period to discuss the Market Principles for Issuing European CMBS 2.0 will be open until Sept. 18.

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