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The State of European CMBS

By Catherine McGrath
Business Development | CSC Global Financial Markets
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CSC was among those attending CREFC’s recent roundtable at Clifford Chance where the latest trends and themes affecting all things commercial real estate were discussed.

CMBS market outlook

• Agency CMBS is back in a big way with the logistics sector remaining the golden child. More asset classes are expected to be tested in 2022, largely hospitality. The future of office work is still unclear with top-tier office buildings in prime locations in secondary markets (and in some cases, primary) failing to receive the bank financing they would have normally achieved before the pandemic.
• Participants were bullish on the pipeline for next year if spreads remain competitive. With banks continuing to focus on certain clients and asset types, and alternative financing proving expensive, the option of a public CMBS provides a welcome opportunity for borrowers.
• COVID-related issues have generally been successfully navigated, in part because sponsors committed more equity in the 2.0 world, and we’ve seen no drawings on liquidity facilities.

CMBS current state

• Both Euro and Sterling trades have been taken down well with Barclays and Goldman’s co-arranged “Last Mile Logistics Pan Euro Finance” covering multiple currencies and a staggering seven jurisdictions.
• Private CRE transactions are booming in the loan-on-loan and repo financing-CMBS hybrid formats. The overriding feeling was there was plenty of liquidity available to be put to work.
• The majority of transactions this year continue to be in 144a format to appeal to a U.S. CMBS investor base, increasingly looking to Europe for yield uplift relative to equivalent U.S. paper. However, this means additional due diligence, increased execution considerations, and timing constraints.
• This complexity is compounded by up to four different risk retention regimes (Italy, U.S., U.K., and EU) stakeholders now have to contend with.
• Morgan Stanley’s German Multifamily HAUS – Eloc 39 21yr CMBS (five-year with a call option) was a hot topic of discussion. The extension risk was taken down comfortably in the Sterling market by pension fund investors already familiar with RMBS features, stability of future cash flows, and longer dated debt.


• CRE CLOs were also heavily debated. While this is an established, mature market in the U.S., the asset class is still nascent in Europe. However as Credit Suisse’s Starz Mortgage Capital 2021-1 proved, investor demand for this product is strong. European CRE CLOs have undoubtedly come about as a result of the same drivers that underpin the U.S. market—nonbank lenders deploying a significant amount of CRE capital against a backdrop of saturated bank warehouse lines, with some traditional lenders losing appetite for the senior space. Is it a funding tool or market arbitrage? Either way, you cannot deny the fundamentals are compelling—priced at a discount, with a 25% haircut, participants are eagerly awaiting longer term performance.
• Importantly, it is a structure which utilises U.S. technology but is (for now) rated under European CMBS methodology. An increase in deal flow will undoubtedly lead to ratings agencies carving out a specific framework for assessing CRE CLOs.

CMBS challenges

• Regulations: Will CMBS ever become STS complaint? The room didn’t think so. Politically, it feels far from the European Council’s agenda.
• Tax issues: One last thought on the withholding tax side—additional level of HMRC scrutiny on Irish DACs (including a current policy review) has led to delays in issuers receiving both treaty passports and gross payment directions. There are interim structural solutions available to alleviate this headwind. The message was clear—speak to your trusted counsel for further details and factor in these delays in to your issuance timetable.

CSC is one of the world’s largest privately held businesses, offering SPV management and corporate trust and agency services for capital markets transactions. We support issuers, investors, arrangers, originators, and advisers across all asset classes. We act as corporate service provider on all the deals mentioned above. To learn more, visit us at or email me at