BAML prices ‘last mile’ CMBS

Investment bank sells rare UK notes following logistics loan to Blackstone and M7.

Bank of America Merrill Lynch has priced a £347.9 million (€389.3 million) UK CMBS, against the backdrop of a market which has been virtually closed for around 18 months.

The deal securitises a portfolio of ‘last mile’ logistics properties bought by Blackstone and M7 Real Estate in September.

Taurus 2017-2 UK DAC was sold across five tranches, with the issuer retaining a £10,000 X-note in addition. The £164.48 million ‘A’ tranche was rated AAA and priced at 85 basis points over three-month Libor.

The £53.22 million ‘B’ tranche was priced at 140 bps over Libor, while the £33.69 million ‘C’ tranche was priced at 185 bps and the £51.83 million ‘D’ and £44.71 million ‘E’ tranches were priced at 250 bps and 350 bps, respectively.

The CMBS notes were sold to 22 investors, with UK-based buyers taking up 76.8 percent of the notes and Benelux-based investors taking 12.1 percent. Other European investors accounted for 3 percent, with the remaining 8.1 percent was taken by investors from outside Europe.

Asset managers accounted for 76.2 percent of notes, with hedge funds in for 21.5 percent and banks taking just 2.3 percent.

‘Project Sunflower’ as the loan was called, related to 127 industrial units across the UK, generating more than £34 million of rental income per year. The portfolio was valued by CBRE at £547.8 million. In August, Estates Gazette reported that Blackstone and M7 were to buy the portfolio from Brockton Capital and Dunedin Property in a £559 million off-market deal.

“The need for logistics operations that are near to consumers to facilitate same-day delivery is growing rapidly. This is driving up demand for so-called ‘last mile’ logistics properties,” said rating agency Fitch in a pre-sale report. “Well-located light industrial buildings in this portfolio can be used as the final step in a supply-chain network.”

The CMBS is due to mature in November 2022, with a legal final maturity of November 2027. In line with regulation, BAML will retain an interest of at least 5 percent of the underlying loan.

The CMBS market made a faltering post-crisis return in 2011, although it has been quiet during the past 18 months. BAML sealed two CMBS deals in 2016, although there has been little publicly traded activity in the market since.