The market is ripe for the first pure multifamily residential dwelling securitization of Eastern German properties, market sources said. The deal is expected to be 400 million in size.
But the transaction won't be alone as 2006 is expected to be another big year for these deals, said market sources. "In general, CMBS will continue to a big area of growth and, in particular, multifamily home securitizations will drive this growth," Nicolaus Trautwein, head of the German securitization team at Commerzbank, said.
Stuart Nelson from the structured finance team at Standard & Poor's said that deals that have come to market so far have been well received. The trend towards privatization has seen the government and large corporations selling off sizeable chunks of housing stock to investors. Goldman Sachs last year acquired 65,000 apartments for 2 billion ($2.4 billion) and Deutsche Annington, which is owned by terra firma, purchased 152,000 apartments for 7 billion ($8.4 billion). These portfolios are among the larger size acquisitions that have prepped deals for the securitization market. "Multifamily housing has been sold in big concentrations to private equity firms like terra firma who now own these huge portfolios," Trautwein said. "It's more efficient for them to look at alternative funding sources where they only have to deal with one or three banks as opposed to funding the deal via lots of smaller banks. The securitization market is the only place firms with a big concentration of these assets can find one big loan."
Trautwein added, however, that executing these larger deals takes a bit of time for structuring to work efficiently. Still, he expects to see more of the more voluminous transactions, sized between 3 billion ($3.6 billion) and 4 billion ($4.8 billion), to be part of the securitization repertoire in 2006. "I think one area that will be looked at will be multifamily home assets in conduits which, at the moment, are being set up by several German banks," he said. S&P's Nelson estimated that between 20 and 25 banks sought to provide clients with an ABS platform. "Approximately 20% of the deals we saw this year in Germany were actually refinancing activities," he said. "If this goes away then the slack will have to fall on these lenders."
In the past, multifamily property companies were able to fund cheaply via the Landesbanks but with the changing environment these banks have less incentive to provide loans at the competitive rates they used to offer. "I think it's a combination of the market speed decreasing quite significantly, while the need for funding has increased and all of a sudden the market has shifted to where the terms of securitization seem quite attractive for these property companies," Trautwein said. Commerzbank is currently working on a multifamily deal due out sometime in the 2Q06.
Elsewhere in the securitization marketplace, skepticism is growing that the anticipated German NPL boom (see ASR 1/10/05) will ever materialize. Market analysts say that its been harder to sell the benefits of securitization and that, at the moment, it's not likely that 2006 will offer the boom that has been expected since last year. "There has been a lot of talking and a lot of buying and selling but securitization is still seen as a difficult tool," Trautwein said. "It seems to be also that securitization is not as competitive as the traditional method of funding because it's perceived as being data administrative heavy." However, one source added that there has been talk of one bank possibly planning a securitization takeout for sometime this year. S&P's Nelson added that it has taken awhile to make securitization friendly and, at the same time, it's still unclear whether issuers will opt to come to market with large deals or break up portfolios into smaller market issues.
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