Real Estate News
CMBS guidelines aim to restore investor confidence
27 Jul 2012
GLOBAL - CRE Finance Council has published a set of guidelines aimed at making new-generation CMBS more palatable to investors made cautious by ongoing legacy issues with old-style securitisations.
The 'market principles' published this week focus primarily on reporting and making sure would-be investors understand how new CMBS will be structured.
They also include some provisions around liquidity - a significant issue for legacy CMBS - including a recommendation that arrangers set out a cash flow model in advance.
Although the council was keen to point out that these are indicators of best practice, rather than rules, the guidelines' authors said they hoped to contribute to the development of a market that would in turn address an immediate need for senior debt.
"The principles are only suggestions of best practice, and it will ultimately be a matter for market participants to decide whether or not to endorse them by applying them to their transactions," they said in their introduction to the report.
Some industry analysts expressed doubt that the new guidelines would be sufficient to inspire investor confidence sufficiently to kickstart the moribund European CMBS market.
So far this year, Europe has originated just $326m (€268.6m) of new CMBS, in contrast to CMBS worth $18bn in the US - itself a modest figure compared with volumes at the 2007 market peak.
David Lebus, associate analyst at Jones Lang Lasalle Corporate Finance, said: "The guidelines will help, but investors are still nervous about the CMBS market.
"Until we see resurgence in the real estate market, issuers will struggle to raise CMBS even if they're well structured."
According to ratings agency Fitch, €2.5bn in outstanding CMBS loans will be due this month, including €1.5bn from 13 rolled-over loans.
With no improvement in the market secondary assets, the agency predicted repayment rates would deteriorate.
CRE Finance Council sees no clear source of funding - either from banks and private equity firms - to refinance €75bn in outstanding European CMBS loans originated before 2007.
Cordea Savills and M&G were among the fund managers involved in the drafting of the report.
However, the council acknowledged it had failed to reach a consensus on some issues and had had to rely on a majority vote.
Author: Shayla Walmsley