Â鶹ӳ»­

Investor appetite for CMBS is returning, Gagfah’s chief financial officer, Gerald Klinck, told PropertyEU in an exclusive interview.

Hot on the heels of its successful ‘Taurus’ CMBS last month, Germany’s largest listed residential company, Gagfah, has signed the refinancing of its €2.061 bn GRF loan via a CMBS structure. ‘We feel happy with our second CMBS of the year, it a big milestone for us,’ Klinck said.

The new CMBS, known as GRF 2013, is secured against the original Gagfah portfolio of 60,000 apartments that was acquired from the public-owned German pension system in 2004. The properties are located across Western Germany, as well as Berlin.

Gagfah made the decision to issue a new CMBS following the success of its €1.08 bn Taurus CMBS 2013 GMF1 last month because it proved popular with investors and was heavily oversubscribed, Klinck said: ‘We decided that demand was there for a €2 bn CMBS. Demand for this product is high because it’s a low-risk investment that allows investors to buy into residential properties across Germany, and not just in one location. This makes it attractive to international investors,’ Klinck added.

US INVESTOR APPETITE
The securitisation is likely to appeal to investors such as US-based investment managers Pimco, BlackRock, JP Morgan and UK-based M&G Investments who all bought Taurus bonds last month. The renewed interest in the CMBS market suggests growing confidence in securitization, which had virtually disappeared in the wake of the financial crisis.

Once the GRF loan has been securitised, Gagfah will have prolonged more than €3 bn of debt for five years or more and reduced its weighted average interest rate to around 3.65%.

For Klinck, refinancing via the CMBS market is a no-brainer: ‘The advantage of the CMBS market for us is that it is less complex than the split into various different pools that other refinancing options, such as the Pfandbrief market, offer. While LTVs for both of the avenues, at around 65%, are broadly the same, it is much more complex to divide a large portfolio into small pieces to securitise via the Pfandbrief or insurance market - and therefore more costly. The other big advantage of a CMBS structure is that the amortization profile is more attractive - 0.5% p.a. versus 1% p.a. or more. Also, interest rates are lower - around 100 bps lower on average. That gives us headroom to invest in our portfolio,’ Klinck added.

COMPETITIVE PRICING
Taurus achieved competitive pricing with a combined margin on the five tranches of around 150 bps for 60.3% loan-to-value. The five-year term comes with a one-year extension option and the coupon, at 3.34%, was 99 bps lower than the previous loan, according to Gagfah. The pricing for the €710 mln of Class A bonds was 105 bps. The CMBS was secured against Gagfah’s Woba multifamily portfolio of 37,000 apartments in Dresden and was also arranged by Bank of America Merrill Lynch.

A further boost to the market is being provided by the recent spate of new CMBS activity in the US, according to Mike King, a senior analyst in C&W’s corporate finance team in London. There have already been $37 bn in new CMBS issues in the US this year - up from just $3bn in 2009 - according to the US trade association CRE Finance Council (CREFC). Analysts are forecasting total issuance for this year of between $65 bn and $75 bn, according to Alex Levin, manager of industry standards and strategic relations at CREFC.

‘There’s a lot of investor interest on the back of that, which is creating a more developed investor base - which is a very positive thing for the market,’ said King. Subsequently, there is ‘strong demand’ for multifamily CMBS, King said. ‘Multifamily, because of the volume, is a natural fit for CMBS,’ he added.

Gagfah owns 145,000 apartments in Germany and manages a further 35,000 for third parties. In total, it holds a portfolio valued at €7.7 bn.

The GRF securitisation is expected to close on 20 June, and will have an interest rate of 2.76% p.a., with amortization of 0.5%. (The current interest rate of the GRF loan is 4.32% p.a.) The CMBS structure will have a five-year term with the option of extending for one further year, Gagfah said. It has been arranged jointly by Goldman Sachs and Bank of America Merrill Lynch.