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As industry participants head off on their festive breaks, there will be a level of euphoria that despite unfavourable regulation, political uncertainty as well as a very cautious macro-economic outlook, the European CMBS industry has successfully not only avoided succumbing to many potential market pitfalls but when you take into account the volume of issuance as well as the heterogeneity of the deals that have graced the market, then 2019 can be said to be a positively booming year for the product.
Although the level of issuance is encouraging and CMBS has once again proven itself as an important finance tool for commercial real estate, one of the most striking things from the year has got to be the sheer number of arrangers actively operating in this space. Indeed, looking at 2019 issuances, then the likes of Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley have all been extremely active, but they are definitely not alone, as others, including BNP Paribas, Deutsche Bank and HSBC have all been busy in this market.
In terms of the collateral, a significant number of 2019 deals have been secured by UK properties, which have varied widely ranging from cold storage warehouses and logistics units to portfolios of hotels and shopping centres. As for the geographical spread, although UK assets have dominated, there has also been a distinct European flavour to the crop of deals which have featured assets located throughout Europe including the Netherlands, France, Ireland, Germany, Finland and Italy.
With regard to the CMBS 2.0 trend of individual transactions being largely confined to one or two large chunky loans with well known US private equity houses as sponsor is a trend that shows no sign of abating and once again there appears little appetite for arrangers to kick-start traditional conduit style programs enabling them to securitise portfolios of five to twenty medium size loans in a single shot. Having said that one notable deal that bucked the trend is HSBC’s Pembroke Property Finance which featured the securitisation of over a hundred €1-2 million sized loans secured by Irish commercial real estate. As demonstrated by this success, CMBS still can be said to have huge latent potential for a much wider application and therefore we predict that there is likely to be an uptick in these types of deal and with that conduit style transactions may still yet come back to the fore.
In summary, during the course of 2019, CMBS has proven itself to be a versatile funding tool that has performed a greater role for financing commercial real estate than many commentators had forecasted. News that CREFC are holding a conference in May that is solely focussed on CMBS can be considered testament to both the resilience and importance of the product and therefore as market participants get ready for their festive parties, it would be fair to say that metaphorically speaking one thing that has become loud and clear, is boom, boom, boom – CMBS is finally shaking the room.