Tight pricing of Morgan Stanley CMBS highlights investor demand

The securitisation of debt linked to a logistics property achieved 75bps for its highest-rated notes, following a trend of constricted prices in the market.

The pricing of Morgan Stanley’s €220.9 million securitisation of a logistics loan backed by German and Dutch assets provides further proof that investor demand is keeping CMBS pricing low.

The deal, sponsored by MStar, the Starwood Capital and M7 Real Estate joint venture, priced at 75 basis points for its €113.7 million ‘A1’ tranche, in line with pricing seen in recent securitisations.

The AAA notes of Goldman Sachs’s Ribbon Finance 2018, a single-loan £427.3 million (€482.9 million) CMBS backed by Holiday Inn hotels in the UK launched in mid-May, were priced at 78bps. More recently, in June, the investment bank priced the highest-rated notes of Kantoor Finance 2018, which securitised €247.8 million across two senior loans against Dutch offices, at 72bps.

There has been a tightening pricing trend since the market reactivated at the end of 2017, with the issuance of Taurus 2017-2 UK CMBS, a transaction led by Bank of America Merrill Lynch and secured against a portfolio of ‘last-mile’ logistics properties bought by Blackstone and M7 Real Estate. In the Taurus 2017-2 UK deal, AAA notes priced at 85bps.

Since then, there has been a relatively steady flow of issuance with seven transactions issued in 2018 so far and “a pipeline continuing to build”, according to a report from ratings agency DBRS. 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,” Mirco Iacobucci, vice-president, global structured finance at DBRS, told Real Estate Capital in June. “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 10bps to 15bps,” he added.

Morgan Stanley’s Libra (ELOC 31), the latest CMBS priced, was sold across six tranches. The €23.7 million ‘A2’ tranche was priced at 95bps, while the €12.4 million ‘B’ tranche and the €28.5 million ‘C’ tranche were priced at 115bps and 170bps respectively. The €22.9 million ‘D’ tranche was priced at 230bps and the €19.7 million ‘E’ tranche achieved a pricing of 325bps.

Libra is the securitisation of a €282.5 million three-year senior loan written by Morgan Stanley in January, backed by 49 light-industrial properties and one office property in Germany and in the Netherlands valued at €418.6 million.

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