NorthStar Realty Finance Corp. is preparing to issue at least two commercial real estate CDOs in the near future. The New York-based real estate investment trust in recent months has made arrangements for warehouse facilities with Banc of America Securities and Wachovia Securities in order to house assets for what will be the company's sixth and seventh CDOs, respectively, to come to the market.

Bolstering the company's commercial real estate loan origination activities, NorthStar announced plans to purchase Allied Capital Corp.'s commercial loan origination platform Timarron Capital Inc. for as much as $2.6 million late last month. That deal is expected to close in January. NorthStar originated three CDOs so far this year, and one each in the previous two years.

NorthStar CFO Mark Chertok divulged during the company's third quarter earnings conference call last week that the origination strategy will be to finance loans they'd like to hold, including relatively large first-lien mortgage loans, as well as mezzanine and bridge financing. In the third quarter NorthStar originated $114 million of first-lien mortgages, 50% of which were sold to third parties. All but 5% of those loans were financed by the company through proceeds from the issuance of its fourth CDO, a $400 million deal that came to the market in June. The move is a strategy being used by an increasing number of CMBS investors thanks to the matched-term funding the arrangements provide. NorthStar's fifth CDO, totaling $500 million, came to the market in September.

Mitch Wasterlane, the company's chief investment officer, said the heightened volume of CMBS issuance expected during this quarter could lead to spread widening, particularly on triple-B minus rated securities. Wasterlane said NorthStar's investment strategy will be to move up in credit. NorthStar has already embarked on this path, upgrading the credit quality of its investment portfolio during the third quarter from a weighted average rating of triple-B minus to triple-B flat. Wasterlane added that the ballooning selection of supply would not necessarily accelerate CDO issuance during the quarter.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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