Deutsche Bank goes live with FLORE German resi CMBS

Keen interest in German housing helps get €754m issue off the ground

The second new CMBS to be issued this year has been priced and the bonds are due to be sold this week. The €754m FLORE 2012-1 German multi-family housing agency deal is likely to attract German institutional bond buyers. Deutsche Bank is sole bookrunner and lead manager.

The bond pricing ranges from 184 basis points over three-month Euribor for the €392m of class A notes, up to 792bps for the €50m of class Es, with the loan-to-value ratio across the whole loan at 64%.

Deutsche Bank could hold on to some of the notes itself if, for example, it were to find some  of the lower classes of notes difficult to sell, according to market speculation.

The underlying property comprises 28,859 homes and 7,124 parking spaces, as well  as 421 various other units concentrated in 10 cities across west Germany. The borrower, Vitus Immobilien, is owned by a consortium of investors including Blackstone, Deutsche Bank, Aviva Investors and Round Hill Capital.

The issue is good news for the CMBS sector, particularly as it was structured in response to demand for bonds from multiple investors, according to a person  working on the deal.

“It’s a good deal and there is significant interest,” he said. “It’s good collateral and has far more stable execution than dealing with lots of pfandbrief banks, which other multi-family deals (like GRAND) are subject to.”

Fitch Ratings and DBRS rated the issue. Fitch praised the fact that the deal allows sufficient time for a protracted work-out and substantial deleveraging if needed, through its seven-year tail period following scheduled maturity in October 2017.

Moreover, a mechanism effectively capping Euribor at 8% of the interest rate payable on the notes during the tail period is also envisaged, it said. This partly mitigates the risk of Euribor rises after scheduled maturity, when the underlying loans will revert to floating rate.

“The absence of a single controlling class, typically able to obstruct loan work-outs against the preference of the majority of noteholders, is also seen as positive,” Fitch added.

One CMBS trader agreed the deal was positive, with pricing favourable due to German margins being generally slightly lower and strong demand for German housing. But that also means “it does not speak to the market as a whole”, he added. The refinancing will repay the maturing Centaurus Eclipse CMBS.