The first CMBS deal that’s in compliance with new risk retention rules has been sent to ratings agencies for preliminary feedback, industry sources told Real Estate Capital.
Wells Fargo, Bank of America and Morgan Stanley are teaming up on the circa $1 billion transaction. They have sent preliminary details on the deal in order to catch any problems with the proposed structure and make sure they are conforming to the rules before risk retention rules go into effect in December.
Starting in December, CMBS issuers will have to retain a 5 percent slice of every tranche in a new deal they issue — or designate a B-piece buyer to take on that risk. The rules have created some confusion in an already volatile CMBS market that saw spreads widening aggressively earlier this year as issuance numbers dropped dramatically. Spreads have since tightened, but nearly halfway through the year issuance currently stands at just $26.8 billion, according to latest numbers from Trepp, which pales in comparison to last year’s $100 billion-plus full-year tally.
Regulators are implementing the risk retention rules as part of the 2010 Dodd-Frank regulations, meant to avoid risky practices that led up to the recession by forcing issuing banks and B-piece buyers to keep a vested interest in the securities — rather than passing all risk onto investors.
Last month the single-family rental (SFR) deal, Colony Starwood Homes 2016-1, was launched with a risk retention class, becoming the first such structure in a securitization, but this marks the first CMBS deal that would be fully compliant.
Pre-sale reports for the transaction won’t be made public at least until mid-July, sources said. Bloomberg first reported on the new deal.