The commercial mortgage-backed securities market is gearing up for an active February, with three deals currently in the works, one of which has already priced.
Goldman, Sachs & Co. priced a floating-rate deal late Thursday. The $393 million transaction, co-managed by Banc of America Securities and Chase Securities Inc. consists of four class-A office buildings, three in Manhattan, and one in Stamford, Conn.
The deal, which was one of the first to be conducted in the new A/B structure, priced as follows: triple A at Libor plus-28; double-A-plus at Libor plus-37; double-A-minus at Libor plus 47; and single-A at Libor plus-86. According to one CMBS trader, "They beat the spreads that we posted here most recently, which was like 30 on triple-A. We were all very oversubscribed. There was a lot of demand. We could have pushed it tighter."
In this A/B structure, the three Manhattan buildings have mezzanine debt on them which is separated from the rest of the deal into a specific tranche of the transaction. This tranche, while separate, is still part of the public security.
By placing mezzanine debt in the public transaction, it may increase its liquidity. "Because typically, mezzanine loans have always been private placements, so there's a very small universe of well-known mezzanine buyers," said Michael Hoeh, head portfolio manager at Dreyfus Corp. "This type of transaction, where it's in the public deal, makes a lot of sense and I think they'll be pretty successful with this. We'll see going forward how many more come out this way."
Elsewhere in the market, a $500 million transaction offered by Vornado Finance LLC is set to price March 1. Morgan Stanley Dean Witter will lead-manage the transaction, which will be co-managed by Banc of America Securities, Chase Securities Inc. and Salomon Smith Barney.
The deal is backed by 42 properties, all of which are located in the northeastern states of Connecticut, Maryland, Massachusetts, New Jersey, New York and Pennsylvania, totaling almost eight million square feet. Each building is designated retail, with one building containing both office and retail space.
The loan for the transaction has a 10-year maturity on a 30-year amortization schedule. According to a pre-sale report issued by Duff & Phelps Credit Rating Co., none of the properties have or will be permitted to incur secured subordinate debt without the servicer's consent, and the transfer of equity interests in the borrower and consequently, the incurrence of mezzanine debt, requires rating-agency approval.
The third deal, which is set to price shortly, is backed by a Mall of America loan for $312 million. It will be managed jointly by First Union Capital Markets and Chase Manhattan. The loan is a floating-rate, bullet loan with a maturity in March 2003.
Around the CMBS Market
There has been some talk in the market of a significant sell-off of triple-B class CMBS, leaving spreads to widen a bit, as aggregate paper starts to amount on dealers' shelves. Market observers said that this sell-off might be in response to the huge demand that has been seen recently for mezzanine debt.
"On deals like that one, you know like the floating-rate [Goldman Sachs], and the Vornado deal, people may like it because of the name of the borrower, because of the assets themselves," said a CMBS trader. "When it comes to a conduit deal, there's not that much to like or not like. If you like triple-B you'd buy it, as long as it's not junk, and if you don't like triple-B, you don't buy it."
