First New CMBS In Five Months Gives Insight Into Loan Pricing

Bank of America Merrill Lynch has successfully completed the first securitised loan sale since before the coronavirus pandemic, in a deal that gives an insight into the state of the UK debt market. 

BAML has securitised a £518M loan secured against a £914M portfolio of industrial properties owned by Blackstone’s European industrial platform, Mileway.

Although CMBS only accounts for a small portion of the debt secured against UK commercial property, the fact that debt investors were willing to buy bonds secured against commercial property is a positive sign for the market. 

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Even so, the pricing of the bonds is indicative of how the margins on loans have increased since before the pandemic. The highest-rated tranche of the bonds was priced at a margin of 170 basis points, according to Real Estate Capital. For BAML’s last deal before the pandemic, the senior tranche of bonds was priced at 90 basis points, showing how debt investors now want a greater margin to compensate for the increased risk. 

However, Fitch EMEA Head of CMBS Euan Gatfield told REC that the fact there were buyers for the bonds showed that there was now greater clarity on how well some real estate sectors were performing in the new world. 

It is not surprising that the first loan securitised since the pandemic would be in the industrial sector, given the asset class has performed well in terms of rent collection relative to other areas.

A report by DBRS Morningstar said the portfolio saw 81% rent collection at the end of June, and those tenants that didn’t pay had seen their rent deferred, rather than written off. 

The portfolio comprises 285 properties totalling 16.2M SF of housing 2,551 tenants. Those tenants pay a total of £64M in rent and the weighted average lease length to the first break clause is three years.

The composition of the portfolio highlights how, whatever the operators in the sector might tell you, light industrial is not a sector solely driven by the rising fortune of e-commerce. Only a fifth of the tenants are in the transportation and storage sector, with 30% in manufacturing and 16% in wholesale and retail, DBRS said. 

There is also a £149M mezzanine loan secured against the portfolio, putting the loan to value ratio of the whole portfolio at 72%.