Resource America Inc. subsidiary Resource Real Estate is gearing up to close the first of two CDOs it plans to bring to market this year. The $345 million deal, Resource Real Estate Funding 2006-1, is backed primarily by mezzanine, B-notes, and a 20% share of commercial real estate whole loans.
The deal is co-led by Deutsche Bank Securities and Bear Stearns and matures August 2046; LaSalle Bank is the trustee. At 40.6% and 35.7% current portfolio concentrations respectively, the deal carries a higher portion of B-note and mezzanine securities than a number of recently issued CRE CDOs, including Marathon Real Estate CDO 2006-1 and N-Star REL CDO VI. The short-term nature of much of the portfolio notes is expected to result in a full turnover of the CDO portfolio during its five-year reinvestment period, according to Fitch Ratings. However, RRE can sell out of any securities that are defaulted or pose a "significant credit risk" throughout the life of the deal.
Resource America is a seasoned player in the CDO market, having managed 18 deals to-date. Representatives of the company's externally managed real estate investment trust subsidiary, Resource Capital Corp., last May relayed plans to shed RMBS assets in favor of higher-yielding CRE securities. A number of vanilla RMBS investors have expressed interest in buying into higher margin asset classes as rising short-term interest rates have squeezed profits. From yearend 2005 to the end of the first quarter, the REIT's agency RMBS portfolio decreased by 17%, while its commercial real estate holdings increased by 24%, syndicated loans by 18% and leasing assets by 164%. (ASR, 05/15/06) The company had been gearing up to launch its first CDO in order to provide match-term funding to as much as 70% of its assets.
Resource America recently hired Kyle Geoghegan and Darryl Myrose as managing directors of Resource Real Estate Funding (ASR, 05/05/06). Both joined Resource from Bear Stearns, where, as managing directors, they oversaw the firm's commercial real estate lending business for its Los Angeles office. In their new roles, Geoghegan and Myrose focus on the direct origination of floating-rate commercial mortgages. They work with John Boyt, who oversees B-note, mezzanine and whole loan origination, and who is based in New York. Both Geoghegan and Myrose report to David Bloom, senior vice president of Resource America's parent company Resource Capital Corp. and president of RREF.
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