Thriving on one-off deals
Morgan Stanley brought the CMBS conduit to Europe. But as Chris Dammers discovers, its business now barely relies on the conduit.Morgan Stanley can reasonably claim to have invented the European commercial mortgage backed securities market in its present form, so it should be no surprise that it is our champion.
The bank's pioneering European Loan Conduit (ELoC) programme, inaugurated in 1999, was the first to transplant the investment bank CMBS conduit from its US home to Europe.
Morgan Stanley had launched more than 10 deals before rivals such as Credit Suisse and Deutsche Bank had caught up with the concept of extending commercial mortgage loans and bundling them up into securitisations.
"If you look back at the origins of the ELoC programme, the idea was to provide timely funding to segments of the market that were underserved or weren't served," says Steve White, head of European ABS syndicate at Morgan Stanley in London. "You had smaller real estate owners for whom the larger banks couldn't be bothered to get out of bed to service loans of Eu5m, Eu10m, or Eu20m. At the other end of the scale you had very large loans that the large banks just couldn't make a decision on in a timely manner. We could do the analysis and make a decision quickly."
The programme continues to flourish, despite the departure of several senior managers in early 2004, including the conduit's head Lynn Gilbert, who moved to Barclays Capital, and Arvind Bajaj, head of distribution, who went to Credit Suisse.
Yet Morgan Stanley's continued dominance of the CMBS league tables — it was the only bank to top Eu10bn for the period between January 2005 and May 2006 — certainly does not depend on the ELoC programme.
With the proliferation of rival conduits, ELoC issuance has dropped to a few deals a year.
More than making up for this is Morgan Stanley's strong franchise in one-off transactions, including this year's three landmark restructurings of Sainsbury's supermarket portfolios, British Land's BL Superstores and J Sainsbury's Eddystone Finance and Longstone Finance.
"The strategy has evolved and it's more about where we can add value," says White. "It became a question of 'follow the money — who needs us?' Although our origins were with the smaller property owners, who owned a small shopping centre here, or a small office block there, it became obvious to us through our work with Morgan Stanley Real Estate Fund that the private equity real estate funds, Blackstone or Fortress or whoever, could also use us. So our strategy has largely evolved around that out from the UK on to the continent."
Stanley's CMBS business undoubtedly benefits from its connection with MSREF, one of the biggest players in global real estate equity.
This relationship has resulted in large transactions such as a £360m tap of Canary Wharf Finance II in May 2005 (MSREF had bought Canary Wharf) and Immeo Residential Finance in November. The latter Eu2.1bn deal refinanced the acquisition of 48,000 German flats from ThyssenKrupp by MSREF and Corpus Immobiliengruppe.
However, the CMBS group, headed by Shirish Godbole, is housed entirely in the securitised products group run by Ellen Brunsberg. "CMBS is part of what we call the SPG, but what we've done is split off specific real estate expertise into that group as opposed to the residential mortgage group or the consumer finance group," says White. "Within the real estate group we effectively have two teams. One is dedicated to our direct lending, whether that is ELoC-specific or some of the one-off large loan transactions that we do, and another that is more structuring-oriented, dedicated to working with third party clients who want to do transactions."
|Key staff: Ellen Brunsberg (head of securitised products group, Europe)
Shirish Godbole (head of European CMBS), Steve White(head of European ABS syndicate)
Key clients: British Land, Morgan Stanley Real Estate Fund, Sainsbury's
Best deal of 2006: Eddystone Finance/Longstone Finance £2.07bn securitisation in March of 127 Sainsbury's supermarkets that refinanced all the company's £1.7bn of unsecured debt