Bank of America Merrill Lynch has launched the second new European CMBS this year following Deutsche Bank’s Italian €355m DECO-2014 Gondola transaction two weeks ago.
BAML is securitising a senior loan it recently made for Apollo Global Management’s purchase of the Project Moon portfolio comprising 135 secondary properties spread across the UK. The deal is notable in that the assets underlying the loan are not prime and there is a 16% vacancy rate across the assets.
Called Taurus CMBS UK 2014-1 the £211.5m transaction comprises a £133.3m A/A tranche, up to 41% LTV; a £48.8m BBB/BBB- tranche, at 56% LTV; and a £29.4m, BB/BB tranche at 65%, according to CoStar. The expected maturity is November 2017. It will be rated by Fitch Ratings and DBRS.
The CMBS is seen to be relatively risk averse despite the nature of its underlying collateral. One source said: “It’s smallish and LTV is only about 60% even for the lowest ranking notes. It also has high interest cover.”
Pricing guidance has yet to be released but it is thought blended overall pricing will be at least 300 basis points, up to as much as 400 bps.
Debt funds could be potential buyers. Bond desks for insurance companies, not necessarily on the real estate side, as well as US funds, are also said to find it easier to take rated bonds than straight real estate debt.
Investment banks are seeking other ways to make money with the financing market for prime assets being fiercely competitive.
“The world is moving towards non-trophy properties so it’s not unreasonable to be looking at those and I would expect to see more deals like this,” the source added. In commercial terms, however, the CMBS is still a long way short of the sort of deals that would have been expected pre-crisis.
Deutsche Bank’s Gondola CMBS is the first multi-loan deal since 2007, and is viewed as an important step towards a recovering securitisation market in Europe. It comprises three loans to one borrower.