It has taken six years for the Coeur Défense office complex in Paris to move out of one CMBS structure into another – but the terms are radically different this time round.

Commercial mortgage-backed securities (CMBS), once vilified along with bankers’ bonuses for their role in the 2008 financial crisis, have been back in Europe for some time as financing markets have loosened up and memories of the market meltdown fade.

They first resurfaced around three years ago in the UK and Germany – where Deutsche Bank has been a big player – before moving more recently into other parts of Europe and heading south to Spain and Italy.

France, surprisingly, had seen no post-crisis CMBS action until last week when Bank of America Merrill Lynch (BAML) announced it was launching the first new French CMBS since 2007 based on part of a loan secured against Paris’ flagship office complex Coeur Défense.

The bank has placed €410 mln of a €930 mln whole loan in a CMBS called Taurus 2014 FR-1, secured against Europe's largest office property which is currently valued at almost €1.3 bn. BAML provided the loan to US private equity firm Lone Star earlier this year for its acquisition of Coeur Défense at a 40% discount.

That this high-profile building in the heart of Paris’ business district should re-enter a securitised structure – even if it is seven years since the crisis erupted - is ironic, given that Coeur Défense was ‘trapped’ in a busted CMBS for years before being rescued by Lone Star in February this year.

Moreover, it was a direct casualty of the 2008 collapse of Lehman Brothers: the investment bank had purchased the building a year previously and, after its demise, the holding vehicle - Heart of La Defense - was forced to file for court protection. That too, and the years of legal wrangling between the owners and creditors which followed, made Coeur Défense a potent symbol of the excesses of the boom years leading up to the crisis.

MORE CONSERVATIVE

But the new CMBS is a far cry from the old species. At €410 mln, Taurus is much smaller in size than its 2007-vintage predecessor Windermere XII which had an original volume of €2.3 bn. Taurus is split into two tranches comprising just two classes of notes: €328 mln in Class A Notes and €82 mln in Class B Notes. Windermere XII had no less than eight classes of notes from A through H. And the LTVs for Taurus are much lower: 50% for the first tranche and up to 62% for the second. The 80% LTV limit originally agreed for Windermere XII was breached on 15 February 2009 and shot well beyond that threshold in subsequent years.

Taurus, then, is in all respects a far more conservative animal than the former breed. As such, it bears all the hallmarks of the post-crisis environment in which complexity, excess and opacity have made way for simplicity, caution and transparency. Other new CMBS launched in Europe since the crisis have also been in this vein.

In June, Deutsche Bank announced it was offering €355 mln of CMBS in the financial group's first issuance of notes backed by multiple loans in Europe since the financial crisis. The Deco 2014 Gondola CMBS notes

are secured against three loans linked to 18 properties in Northern Italy and one in Rome.

‘This transaction is another big step forward for the re-opening of the CMBS market,’ commented Francesca Galante, co-founder of First Growth Real Estate, a debt advisory and loan servicing business focusing on Continental Europe. ‘It is also interesting that this is the second Italian CMBS issuance in just a few months, which is evidence of increasing interest on the part of foreign institutional investors in Italian real estate.’

In late 2013, Goldman Sachs sold €363 mln of Italian CMBS dubbed Gallerie 2013 in a securitisation of a five-year senior loan issued by Goldman Sachs International. The financing – to fund Morgan Stanley’s acquisition of Auchan's Italian portfolio - was priced at around 525 basis points for a 60% LTV.

PROJECT MOON

The Coeur Défense CMBS is not the only securitisation to be offered by BAML this year. In June, it also securitised a £211.5 mln (€265 mln) loan issued to Apollo Global Management for its acquisition of the Project Moon portfolio of around 135 assets from insurer Aviva in a deal worth €440 mln. Market experts said the BAML deal with Apollo is unusual because the debt is linked to multiple properties rather than to a single trophy asset.

In the same month, Morgan Stanley also provided a £350 mln (€430 mln) facility to enable The Mall Fund, owner of six UK shopping centres, to repay CMBS bondholders.

Plans announced before the summer for a single-tranche securitisation of a £750 mln (€950 mln) senior loan backed by the £2 bn Westfield Stratford City shopping centre in London – to be offered by Credit Agricole CIB and Deutsche Bank – have since been put on ice pending clarification over the two banks’ interpretation of the retention rules set by the European Commission’s Capital Requirements Directive (CRD).

The new five-year CMBS would replace an existing £550 mln senior loan provided by banks Eurohypo, HSBC and CA CIB in August 2011 and due to mature in July 2016.

If it goes ahead, the Stratfield CMBS would be one of the larger bond issuances in the European league table this year. In January, Cushman & Wakefield forecast that CMBS issuance in 2014 would come out at between €12 bn and €15 bn, after just under €8.6 bn of European CMBS were issued during 2013. That figure represented an eightfold increase compared to 2012. ‘With the publication of new CMBS 2.0 Guidelines and re-emergence of investor interest in such products, it is likely that Europe will follow the US trend and see more issuance in 2014,’ the firm said.

Does this resurgence of CMBS activity mean securitisation has also become less risky? The 543-page Offering Circular for Taurus 2014 FR-1, the structure secured by the Coeur Défense office complex in Paris, is clear on this point. On page 20, under the heading Risk Factors, it says: ‘An investment in the Notes involves a high degree of risk.’ Investors be warned.

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