We are delighted to be sponsoring EuroWeek's first Real Estate Securitisation Handbook. 2005 is widely expected to be the year that real estate securitisation in Europe achieves its true and long awaited potential with issuance expected to reach record levels.
Real estate securitisation issuance in 2004 was around Eu20bn. Issuance volume year to date had already exceeded this figure and total issuance for 2005 is expected to reach record levels of between Eu30bn and Eu40bn.
This growth has been driven by a number of factors. Both corporates and funds have found securitisation to be an attractive alternative source of financing and have become increasingly comfortable with the securitisation execution process. Conduit lenders have tapped into this demand, taking advantage of strong CMBS pricing. Moreover, conduit volume issuance is now becoming the backbone of the CMBS market.
Traditional balance sheet lenders have also tapped the market as a new source of funding, to take advantage of capital relief and to improve returns on equity.
Investors have found the historically higher spreads available for CMBS together with the benefits of diversification that it offers to be attractive characteristics. Investor reporting has continued to improve with more issuers adopting CMSA standards and the ratings volatility of CMBS compares favourably with that of other asset classes.
The CMBS market in Europe is showing signs of maturity, with a much higher number of repeat issuers and more active secondary trading for higher rated bonds. The 'B' note market has now evolved in Europe and allows traditional balance sheet lenders to play a role in the growing CMBS market.
As the market moves forward we expect to see more standardisation in 'B' note inter-creditor documentation and a greater number of 'B' note players.
While the UK has dominated issuance levels historically, we expect to see more issuance out of continental Europe, in particular, Germany and Italy. Germany will be the source of a number of multi-family and performing and non-performing commercial mortgage transactions in the coming months.
Structural innovation continues to be witnessed with deals such as Land Securities Capital Markets plc and Real Estate Capital (Foundation) Limited, both of which brought new levels of flexibility into CMBS structures. This year also witnessed the first co-pooled multi-borrower CMBS in Europe through Taurus CMBS No 1 plc.
Merrill Lynch continues to be at the forefront of innovation in the real estate securitisation market in Europe. We see continued growth in this market and CMBS will continue to form a critical part of our real estate financing business in Europe.
Thank you to all those who have contributed to this publication and we hope you find this handbook to be a useful and interesting insight into the real estate securitisation market in Europe.
Dale Lattanzio, Managing Director
Head of EMEA Global Principal Investments, Secured Financing and Real Estate