20/04/23 by: Elena Dilara 1
CMBS and ServicingCMBS and Servicing
Hatfield Philips InternationalHatfield Philips InternationalAn LNR companyAn LNR company
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 22
What is CMBS ?What is CMBS ?
CMBS are bonds sold through the capital CMBS are bonds sold through the capital markets, whose payments are backed by markets, whose payments are backed by commercial loanscommercial loans
CMBS are a segment of structured finance CMBS are a segment of structured finance markets (or securitised markets)markets (or securitised markets)
Other segments: ABS, RMBS, CDO etc.Other segments: ABS, RMBS, CDO etc. CMBS are typically rated by one or more CMBS are typically rated by one or more
rating agencyrating agency
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 33
Volume Trends in Billion £’sVolume Trends in Billion £’s
In terms of issuance:In terms of issuance:1998: 1.11998: 1.11999: 5.31999: 5.32000: 7.22000: 7.22001: 18.42001: 18.42002: 22.52002: 22.52003: 17.52003: 17.52004: 22.02004: 22.02005: 43.12005: 43.1
Characterised by:Characterised by:
Majority of issuance has been in £Majority of issuance has been in £
Maturity of notes an average of 5-Maturity of notes an average of 5-7yrs7yrs
Prepayment risk is highPrepayment risk is high
Average prepayment in high Y loans Average prepayment in high Y loans is 2yrsis 2yrs
Above average returns for below Above average returns for below average risk in across other average risk in across other investment typesinvestment types
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 44
CMBS and un-Securitised Deal CMBS and un-Securitised Deal Volumes in U.S., U.K. and E.U.Volumes in U.S., U.K. and E.U.
U.S.A.U.S.A.40% - 60%40% - 60%
U.K.U.K.
25% -75%25% -75%
E.U.E.U.11% - 89%11% - 89%
More Growth in years to come !!!!!!!!!!!!!More Growth in years to come !!!!!!!!!!!!!
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 55
European 2005 Securitisation European 2005 Securitisation PlatformPlatform
CMBS:CMBS: 13.4%13.4% CDO’s: CDO’s: 14.4%14.4% ABS: ABS: 26.2%26.2% RMBS: RMBS: 46.0%46.0%
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 66
How does it work? How does it work?
Loan
Loan
Loan
Loan
TrustBonds
Pooled and transferred Issues bonds
Rated Bonds AAA to B-/B3
Rating Agenc’s
CMBS bonds bought by investors
Investors
Investors
Investors
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 77
The parties involvedThe parties involved OriginatorsOriginators Rating AgenciesRating Agencies Trustees Trustees (Note and Security)(Note and Security)
IssuerIssuer Swap Counter-partiesSwap Counter-parties InvestorsInvestors ServicersServicers Liquidity ProvidersLiquidity Providers Information Sources Information Sources (Bloomberg and TREPP)(Bloomberg and TREPP) Associations and FederationsAssociations and Federations
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 88
Rating agenciesRating agencies There will be a few as one and as many as four rating agenciesThere will be a few as one and as many as four rating agencies
They provide an OPINION onThey provide an OPINION onFULL and timely receipt of INTERESTFULL and timely receipt of INTERESTUltimate receipt of PRINCIPAL to Noteholders for each classUltimate receipt of PRINCIPAL to Noteholders for each class
Each have different methodologiesEach have different methodologies
Each use different modelsEach use different models
Assessment of RiskAssessment of RiskPROPERTY AS LOAN SECURITYPROPERTY AS LOAN SECURITYLOANLOANLOAN POOLLOAN POOLSTRUCTURE of NOTESSTRUCTURE of NOTES
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 99
Rating agencies Rating agencies DO NOT PROVIDE RECOMMENDATION to:DO NOT PROVIDE RECOMMENDATION to:
BuyBuy
SellSell
Hold securities or TradeHold securities or Trade
OnlyOnly Address CREDIT RISK Address CREDIT RISK
Not marketability / liquidity of NotesNot marketability / liquidity of Notes
Not advise on Prepayment risk and potential impact on Not advise on Prepayment risk and potential impact on Yield Yield to investorsto investors
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 1010
Trustee and ServicerTrustee and Servicer Trustee
The trustee’s primary role is to hold all the loan documents and distribute The trustee’s primary role is to hold all the loan documents and distribute payments received from the master servicer to the bondholders. The payments received from the master servicer to the bondholders. The trustee typically delegates its authority to either the loan Servicer or the trustee typically delegates its authority to either the loan Servicer or the Master servicerMaster servicer
Master Servicer’s responsibilitiesservice the loan, service the loan, collect the payments from the borrower collect the payments from the borrower report on the performance of the loanreport on the performance of the loanmaintain all of the responsibilities and duties to the trust under maintain all of the responsibilities and duties to the trust under the PSA (Pooling and Servicing Agreement)the PSA (Pooling and Servicing Agreement)
Primary or Sub-servicerIn some cases the borrower may deal with the primary In some cases the borrower may deal with the primary
servicer that may also be the Originator / Mortgage Bankservicer that may also be the Originator / Mortgage Bank
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 1111
ServicingServicing B-Piece buyer
The investor in the most subordinate bond classes is commonly The investor in the most subordinate bond classes is commonly referred to as “B piece buyer”. Given that losses come out from referred to as “B piece buyer”. Given that losses come out from lowest rated bonds, the PSA provides the Directing Certificate-holder lowest rated bonds, the PSA provides the Directing Certificate-holder the opportunity to play an active role in monitoring the performance the opportunity to play an active role in monitoring the performance of each loan, make decisions on key asset issues of each loan, make decisions on key asset issues and appoint and/or terminate the Special Servicerand appoint and/or terminate the Special Servicer..
Special ServicerUpon occurrence of certain specified events, primarily a default, Upon occurrence of certain specified events, primarily a default, the administration of the loan is transferred to special servicing. the administration of the loan is transferred to special servicing. The Borrower receives notification from the master or special The Borrower receives notification from the master or special servicer if its loan has been transferred to special servicing. servicer if its loan has been transferred to special servicing. The special servicer The special servicer must act to maximise the recovery of the must act to maximise the recovery of the loan to the bondholders by analysis of collection alternativesloan to the bondholders by analysis of collection alternatives, i.e. , i.e.
(loan modification, foreclosure, deed in lieu, negotiated payoff or (loan modification, foreclosure, deed in lieu, negotiated payoff or sale of the default loan) using NPV methodology.sale of the default loan) using NPV methodology.
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 1212
Payment DistributionPayment Distribution
The master servicer is responsible for collecting payments from the borrower
Borrower
Bondholders
Special Servicer
Master Servicer
TrustThe trustee distributes payment received from the Master servicer. The trustee acts by and through either the Master servicer or the special servicer
Each month the interest received from all the pools loans is paid to investors
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 1313
Types of CMBS TransactionsTypes of CMBS Transactions
Credit Tenant Lease TransactionsCredit Tenant Lease Transactions Single Borrower – Single PropertySingle Borrower – Single Property Single Borrower – Multiple PropertiesSingle Borrower – Multiple Properties Multiple Borrowers – Multiple Multiple Borrowers – Multiple
PropertiesProperties Synthetic CMBS TransactionsSynthetic CMBS Transactions Whole Business SecuritisationsWhole Business Securitisations
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 1515
LEI LEI
LEI is a pan-European real estate private equity investment vehicle, whose primary purpose is to evaluate, make and actively manage investments in real estate related debt instruments and securities.
Who’s Who? Equity InvestmentLNR Holdings £180,000,000 50%PSP £ 75,000,000 21%Teachers Insurance £ 15,000,000 4%Bank of America £ 15,000,000 4%ABP £ 75,000,000 21%
Total equity investment is £360,000,000
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 1616
BREAKDOWN OF INVESTABLE FUNDS
Investor Equity £360,000,000
Fund Leverage 55%
Investable Funds £800,000,000
WHAT DOES LEI INVEST IN CMBS, Subordinate Notes, Mezzanine Debt, NPLs, R/E Equity
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 1717
LEI Investment Breakdown by Deal TypeLEI Investment Breakdown by Deal Type
LEI Fund Investments by Deal Type
CMBS47%
B Notes34%
Mezzanine Loans19%
CMBS B Notes Mezzanine Loans
CMBS 47%CMBS 47%Bonds collateralised by a pool of 1Bonds collateralised by a pool of 1stst charge charge mortgages on commercial real estatemortgages on commercial real estate
Subordinate Notes 34%Subordinate Notes 34%Secured note collateralised by a Secured note collateralised by a subordinate position in a 1subordinate position in a 1stst charge charge mortgage on commercial real estatemortgage on commercial real estate
Mezzanine Debt 19%Mezzanine Debt 19%Loan to a real estate holding company Loan to a real estate holding company secured by a second mortgage or a pledge secured by a second mortgage or a pledge of the shares of the holding companyof the shares of the holding company
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 1818
Deal Breakdown by Property Type Deal Breakdown by Property Type and Jurisdictionand Jurisdiction
LEI Fund Investments by Jurisdiction
UK43%
Germany19%
Sw itzerland16%
France3%
Netherlands19%
UK Germany Sw itzerland France Netherlands
LEI Fund Investments by Property Type
Office/Industrial6%
Office31%
Retail21%
Mixed Use24%
Multifamily15%
Hotel3%
Office/Industrial Off ice Retail Mixed Use Multifamily Hotel
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 1919
Hatfield Philips historyHatfield Philips history
PTG - LehmanPTG - Lehman Securitisation - other OriginatorsSecuritisation - other Originators Investor Reporting Investor Reporting Special ServicingSpecial Servicing
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 2020
HP Deal Statistics HP Deal Statistics Market Share:Market Share:
21 Deals21 Deals
11 Billion Euros11 Billion Euros
100% CMBS100% CMBS
Servicing by jurisdiction: Servicing by jurisdiction:
36% U.K.36% U.K.
35% Germany35% Germany
13% France13% France
7% Italy7% Italy
9% Other9% Other
Competition:Competition:
GMAC and Banks that service internallyGMAC and Banks that service internally
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 2121
Structural Issues in European Structural Issues in European CMBSCMBS
PoP – Sequential TriggersPoP – Sequential Triggers Multi- jurisdictional issues when enforcing Multi- jurisdictional issues when enforcing
securitysecurity Individual Loan PoP in Joint Contributor Individual Loan PoP in Joint Contributor
TransactionsTransactions Available Funds CapsAvailable Funds Caps Release AmountsRelease Amounts A/B Noter Structure compared to Mezz A/B Noter Structure compared to Mezz
joint Inter-creditor Agreementjoint Inter-creditor Agreement
20/04/2320/04/23 by: Elena Dilaraby: Elena Dilara 2222
Servicing IssuesServicing Issues
Transparency Transparency timely presentation of information so it can be timely presentation of information so it can be communicated evenly across the market as is super sensitive when it communicated evenly across the market as is super sensitive when it comes to pricingcomes to pricing
Originator - Servicer- B piece holder Originator - Servicer- B piece holder underwriting models, servicer reports, special servicingunderwriting models, servicer reports, special servicing
Guidelines in Reporting CMSA Guidelines in Reporting CMSA Value added reporting Value added reporting Covenant complianceCovenant compliance Notification periodsNotification periods for Prepayments or Watchlistsfor Prepayments or Watchlists Special ServicingSpecial Servicing