Bookrunner Morgan Stanley and joint-lead Wachovia Securities printed a cashflow static pool CMBS CDO for TIAA CREF last Tuesday, setting a benchmark as the most expensive (from a buyside perspective) structured finance CDO print overall, and the tightest single-A and triple-B pricings seen on a CDO in 2002. According to market participants, this indicates a continued strong bid for CMBS collateral in whatever forms available, as long as there's diversity, a good manager, and yield.

The triple-B tranche on TIAA's Real Estate CDO Series 2002-1, a tranche that was recently considered the most difficult class of debt to place, was reportedly five times oversold as early as May 3 (dealers are reporting strong demand for cashflow CLO triple-B bonds as well from name brand managers).

"Compared to a spread of 110 basis points over Libor on a triple-B conduit CMBS, the pick-up on triple-B CDOs remains substantial," commented one investor.

Several of the investors are understood to have experience buying CMBS and CDOs. TIAA's 45-basis-point level triple-A pricing matches GMAC's Crest 2002 IG CDO, another CMBS/REIT CDO, which priced April 24. Other real estate CDO managers often participate in these deals, although the triple-B pricing here was likely prohibitively expensive. Note that the TIAA Real Estate CDO holds a $6 million position of a Crest 2001-2 CMBS-backed CDO.

TIAA pierced the tights set by Crest in late April 2002 on every class. TIAA's NR/BBB/BBB (no Moody's/S&P/FTC) class tightened to 205 basis points over Swaps (A/L 10-years) from 215-225 basis points over Swaps guidance, while Crest cleared at 225 basis points over Swaps, which at the time was considered extremely tight. Ironically, Crest had lower Moody's weighted average rating factor (WARF) of 427 (Baa2'/'Baa3') compared to TIAA's WARF of 598 (Baa3' is a 610 WARF).

Besides the stellar brand name of TIAA, investors liked that the firm retained all of the equity in the CDO, showing a commitment to the transaction and their CMBS business. "We like that TIAA is a significant player in both the CDO and CMBS market," said one investor that buys both CMBS and real estate CDOs for a bank portfolio.

Also encouraging investors to participate in the TIAA deal was that Fitch Ratings' recently upgraded several tranches of C-BASS's first real estate CDO, demonstrating the benefits of a structure that has no revolving period and delevers throughout its life.

One investor said that a factor which encouraged him and some counterparts to participate in TIAA's deal is their view that CMBS/REIT-backed CDOs are the safest multi-sector CDO product, considering a handful of cashflow structured finance CDOs are now failing at least one portfolio "quality" rating tests.

TIAA's Real Estate CDO Series 2002-1 was backed by assets rated 46% triple-B, 25% triple-B-minus, 24% double-B-minus, 3% triple-B-plus, and double-B-plus. The largest three exposures were as follows: 4.85% ($24.2 million) LB Commercial Conduit Mortgage Trust 1998-C4 Baa2/BBB/NR, 4.0% ($20 million) NLFC 1998-2 D, 3.98% ($19.8 million) MSCI 1999HMT (Host Marriott) Baa3/BBB-/NR.

Separately, shortly after news of TIAA's tight print last week, BlackRock adjusted guidance for its CMBS/REIT-backed CDO via Deutsche Bank. Anthracite now has its triple-B class guidance at 225 basis points over one month Libor in from 275 basis points over, due to the new TIAA benchmark.

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