International CMBS issuance in the third quarter of 2001 continued at the same strong pace set during the previous quarter. The emergence of repeat issuers in Europe, Japan, and Canada has developed the necessary infrastructure to accommodate ever greater issuance volume. But even more important, investor comfort with and growing knowledge of the product continues to build a voracious appetite for international CMBS. A $20 billion total in international CMBS issuance for a calendar year is now a likelihood few considered possible even 18 months ago.

In total, Standard & Poor's issued ratings for 14 international transactions involving over $5.8 billion of debt. While Europe again led the way with five transactions that accounted for nearly 75% of international issuance, signs of life finally emerged in the Japanese CMBS market after a sleepy first half. In Japan, Standard & Poor's assigned ratings during the third quarter to four issuances whose rated debt surpassed $1 billion. Even Canada and Australia got into the act, with each country closing two transactions in this period.

At this point, it is still too early to determine whether the events of Sept. 11 will curtail the record year that international CMBS issuance was on the verge of experiencing. Prior to this date, volume for the year was set to approach $20 billion. As issuers and investors now sort through the business ramifications of these events, it is at least clear that deals in the pipeline for the remainder of 2001 have been delayed. It is likely that several of these deals will be pushed back into next year. Nevertheless, over the last few weeks, issuers have begun to ramp their deals back up, and it is possible that the last quarter may still end with a flurry of issuance.

In the third quarter, European issuance was again led by repeat issuers and first-time German banks utilizing synthetic structures. Morgan Stanley was a dominant issuer, closing two conduit transactions in the quarter. In Italy, the Whitehall Fund came to the debt capital markets for the first time internationally to securitize a nonperforming loan pool.

The same was true in Japan, where Whitehall securitized a pool of owned real estate assets acquired from a failed life insurance company. The transaction, Japan Office Capital Ltd. 1, was a $644 million securitization of office buildings formerly owned by Chiyoda Life. This is by far the largest CMBS offering out of Japan in 2001. Together with the Italian NPL securitization, these transactions marked a departure for Whitehall from its customary financing through private bank debt.

Also this past quarter in Japan, the Morgan Stanley Real Estate Fund securitized a large single asset office building it had acquired, also from Chiyoda Life. The $211 million JLOC Ltd. 2001-1 transaction was yet another in a long list of financings arranged for the fund through the international CMBS market.

Joining the international CMBS bandwagon during the quarter were Australia and Canada. While the two Australian deals were relatively small, they portend future robust activity in that market, which has a growing pipeline of deals.

The two transactions out of Canada were both securitizations of pools of loans by their originating institutions. One portfolio was a well-seasoned pool from Sun Life Assurance, a first-time issuer in the CMBS market. The second transaction was issued by Toronto Dominion through its conduit arm, Commercial Mortgage Origination of Canada.

These loans were originated for securitization, and the transaction was the first such issuance for the group. Both transactions point to the growing CMBS market in Canada that has been predicted for so long. The also point up the fact that the Canadian field is likely to be dominated by Canadian institutions going forward. U.S.-based institutions originating loans in Canada may soon look to partner up with Canadian institutions or face daunting competition for an adequate volume of loans to securitize.

In all, the third quarter was remarkably active as the international CMBS market continues to see tremendous growth.

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