A number of investment banks are aiming to create a streamlined multi-country, multi-borrower commercial mortgage-backed securitization structure for Europe. The move is a boost for the nascent market because it would reduce structural complexities associated with the only deal executed to date, according to CMBS market participants.
The precise parameters of the new structure could not be ascertained, but the outline has been run by rating agencies in London by investment banks. The names of the banks could not be ascertained.
Multi-jurisdiction deals are noteworthy in a European CMBS new issue market dominated by loans originated in the U.K., and are attractive precisely because of the difficulty of sourcing enough loans in just one country on the Continent to achieve critical mass for a deal. Approaching multiple borrowers further expands the loan pool for inclusion in CMBS.
U.S. banks such as Merrill Lynch, J.P. Morgan and Citigroup are among the most likely candidates to pursue multi-jurisdiction deals. Local European lenders tend to have a higher concentration of business in one country, and often have fewer incentives to move loans off balance-sheet through securitization. One London-based CMBS professional at a U.S. bank said his team is looking to do a multi-jurisdiction deal and is waiting to get the right pool of loans together. "Now we have one currency in the Eurozone, it's easier to look across jurisdictions to get a critical mass of loans," he said, but added timing remains a challenge as it is difficult to get sufficient loans into a pool before they pay down. Merrill and Morgan officials declined comment and calls to Citi were not returned.
Only a small handful of multi-jurisdiction deals have been done to date, and the one which included multiple borrowers was Morgan Stanley's ELOC-17 deal. Completed earlier this year, it consisted of seven commercial loans originated in France, Belgium and Ireland, which were securitized in each jurisdiction individually and then rolled up into a single securitization. Some describe that structure as complex. Opinion is split as to whether future deals will follow this structure, with those in favor arguing the legal framework is now in place and can be readily copied, while those who expect further innovation think there is scope to streamline the structure. Calls to Morgan Stanley were not returned.