CMBS has been seeing some activity lately. For instance, Starwood Property Trust announced yesterday that it came to market with a CMBS deal that generated non-recourse match funded financing for the firm with an effective cost of funds of around 3.5%.
The firm, according to a release, separated five mortgage loans with an aggregate face value of $178 million into senior and junior loans. It contributed the deal's five senior loans, comprising either a senior A note or senior participation, with a face value of around $84 million to the securitization and received about $92 million in proceeds, while retaining $94 million of junior interests.
The contributed loans were backed by office, retail and industrial properties and have remaining maturities between four and seven years. Goldman Sachs, Citigroup Global Markets and Wells Fargo Securities were the initial purchasers.
Aside from Starwood's deal, Bloomberg reported that JPMorgan Chase is marketing a $484.6 million CMBS backed by a loan to Centro Properties Group. JPMorgan is also reportedly ready to issue a $1 billion CMBS, the largest for the year, Bloomberg also reported yesterday.
However, the current CMBS deals are not like those during the pre-financial crisis years, according to an article called CMBS Deals Few, and Innovatively Structured to Lure Investors featured in StructuredFinanceNews.com yesterday,
For one, the latest deals consist of fewer, larger mortgages because lenders just do not want to tie up their balance sheets.
Investors in the highest-rated tranches, for another, are being given the the power to direct and replace special servicers.
Goldman Sachs and Citigroup recently gave those rights to buyers of the highest-rated tranches in a $788.5 million CMBS that priced on Aug. 4, Bloomberg said.
“Goldman Sachs has the right idea about giving triple-A CMBS note holders more control in distressed periods,” according to Amy Levenson, managing director at NewOak Capital. “They are the most senior notes and receive the least amount of risk compensation, and this is exactly how CMBS should have been structured all along.”
She added that traditionally, triple-A holders receive considerably less risk compensation compared with the lowest rated tranches receive because they are supposed to be taking less risk.
"Yet today this occurs because the triple-A holders and the lowest tranch holders have interests that are not aligned in the type of real estate collapse we are living through today," Levenson said.
For instance, when a particular CMBS loan is backed by assets that have lost 50% of their value, and have had delinquencies, each party has diametrically opposed motivation in how to treat the underlying asset.
By giving triple-A CMBS note holders increased control in this period, underwriters are leading the way for a more fair structure, Levenson said.