For its second European CMBS deal of 2018, US bank Goldman Sachs has chosen to offer bond investors access to the Netherlands’ office sector.
A little more than a month since the issuance of its £427.3 million (€489.2 million) Ribbon Finance 2018 CMBS, which securitised debt backed by a portfolio of 20 UK hotels, Goldman Sachs will test investor demand for Dutch offices with Kantoor Finance 2018; securitising €247.8 million across two senior loans, including a capex facility for one of the loans.
“We really want Europe’s CMBS market to become more liquid and to have more frequent issuance. That’s healthy because it gives everybody a public indication of pricing for real estate financing,” Jan Janssen from Goldman Sachs’ investment bank tells Real Estate Capital.
The largest loan in the deal is a €184.97 million facility sponsored by Dutch investment group PPF, which refinanced a portfolio of eight office properties and one retail property. The five-year facility, reflecting a 61 percent loan-to-value ratio, carries a floating interest rate equal to 2.4 percent over three-month Euribor, according to rating agency DBRS.
The second loan, totalling €58.36 million, is sponsored by investment management firm Aventicum Capital Management and funded nine Dutch office properties across two acquisitions. The five-year loan, with an LTV ratio of 71.1 percent, was priced at a floating rate equal to three-month Euribor plus 3.44 percent.
Unlike most deals in the recent revival of CMBS, Kantoor combines loans to more than one borrower. It is likely Goldman combined two similar facilities – written in the same jurisdiction and sector – to achieve the scale needed for a viable securitisation.
So far this year, the European market has been dominated by single-borrower CMBS offerings, except for Taurus 2018-1 IT, which securitised €300 million of debt secured on a portfolio of Italian logistic and retail assets sponsored by Blackstone and Partners Group.
Market watchers do not expect a return to the conduit-style deals routinely issued pre-crisis, in which loans to a variety of borrowers were packaged together. Rather, issuers are offering homogeneous product to investors.
“The current market is not comparable with 2006, when every investment bank had a conduit desk and used to literally write a loan every week. Today, it’s difficult to find multiple loans within a time frame for CMBS conduit deals,” Janssen says.
The Kantoor transaction is backed by assets benefitting from relatively high occupancy, at 85 percent on average, according to DBRS. The Dutch office market earlier this decade was characterised by oversupply. According to CBRE, economic growth in the Netherlands has supported a reduction in office vacancy rates from approximately 14.9 percent in 2014 to 12.6 percent in 2017. Meanwhile, the country’s unemployment is forecast to decline from 4.9 percent last year to 3.8 percent in 2018 and 3.5 percent in 2019 – a record low since 2001.
“The office market benefits from these developments, as demand for well-located, high-quality office space remains unrelentingly high,” Frank van der Sluys, head of research in the Netherlands at Cushman & Wakefield, noted in a recent report.
In the Kantoor portfolio, four of the 18 assets are in Rotterdam, the weakest office market among the Randstad locations, with the average long-term vacancy rate in the Rotterdam central business district at 24.7 percent, according to CBRE.
In DBRS’s opinion, such risk is mitigated by the “absolute central location and the high quality of the assets” in the portfolio, with most of them fully refurbished since acquisition or currently under refurbishment.
Recent CMBS deals have been sold at tight pricing levels. Goldman’s Ribbon deal in May achieved final pricing for its highest-rated note of 78 basis points – initial price thoughts were in the low 80bps range. Although margins are tightening on the back of investor demand, there is still a premium when compared with other structured finance deals.
“CMBS still offers yield,” comments Mirco Iacobucci, vice-president, global structured finance at DBRS. “A triple-A tranche in a CMBS is priced at the moment at around 70bps, while the same tranche in ABS or RMBS is priced at around 10-15bps,” he adds.