After several years in which commercial real estate securitization was used primarily to refinance bad thrift debt, 1994 may be remembered as the year the technique finally emerged as a day-to-day financing tool.
"Commercial-mortgage-backed securities are beginning to be extraordinarily well received," said Richard M. Gunthel, managing director of real estate investment banking at Bankers Trust New York Corp., whose group was a close second to Lehman Brothers in a ranking of lead managers by the newsletter Commercial Mortgage Alert.
Mr. Gunthel is one of a handful of bankers who can claim experience in commercial real estate securitization, at a time when other bankers have been lining up to participate.
He noted that issuance - including private placements, which are not counted in some rankings of securities - rose to nearly $20 billion, from $17.6 billion in 1993, despite being held back by rising interest rates and falling activity by the Resolution Trust Corp.
The savings and loan workout agency jump-started the market for commercial MBS with a flurry of issues between from 1991 and 1993, and some observers have wondered whether securitization would die out after the RTC's work was done.
Although he said securitization still is not suited for new construction loans, because investors and rating agencies like to be able to evaluate cash flow from a property over time, Mr. Gunthel said there is continued demand for refinancing of debt by insurance companies and other banks.
And for banks, which have not been big managers of RTC issues anyway, the agency's disappearance from the market won't be much of a factor, noted Robert E. Woods, managing director of real estate investment banking at Citicorp.
Citicorp was the second-ranked bank and 11th lead manager, with four deals for $563 million in 1994.
Bankers Trust was lead manager of five deals for a total of $2.3 billion, up from five deals for $322.9 million in 1993, according to the newsletter. And a spokesman for the real estate group said the bank would have led Lehman Brothers, which led 15 deals for $2.5 billion, if the ranking had included a $600 million securitization by Bankers Trust for Huntsman Corp. that included real estate and other types of assets.
Bankers Trust's biggest deal of the year was a $1.8 billion issue for Comptoire des Entrepreneures, a government-owned bank in France.
The transaction, in which more than 70 nonperforming commercial and residential mortgages and construction loans were restructured and sold to investors, broke new ground in Europe. Mr. Gunthel noted that the mixture of property types and currencies resulted in a "tiering of complexity that you wouldn't ordinarily have" in a U.S. transaction.
Bankers Trust also led a $192 million securitization for Conseco Inc., the insurance holding company. In this deal the bank in effect securitized the leases on retail space, allowing the securities to be priced against the credit quality of the tenants rather than the quality of the mortgage.
The bank led a $75 million issue of seven-year notes backed by shopping center mortgages for JDN Realty Corp. and a $58 million issue collateralized by a seven-year bullet loan on a mall in Binghampton, N.Y.
Mr. Gunthel admitted he was beginning to have some misgivings about his prediction that $20 billion of real estate securities would be issued this year, but will stick to the forecast.
Mr. Gunthel's misgivings stem from the departure of the RTC and a belief that higher interest will crimp the market. What's more, he said, it appears that the growth in real estate investment trusts may level off.
But he is counting on investors' growing appetite for the lower-rated tranches of the real estate securities. Though these so-called B pieces have been snapped up only by the more opportunistic investors, Mr. Gunthel predicted "more patient capital" will enter the market in coming months.
