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Euro CMBS Steams Toward Record Issuance
Total Securitization -- Institutional Investor News (September 8, 2006)

The European commercial mortgage-backed securities market is set to surpass previous issuance records, with market participants predicting as much as Euro 60 billion of new paper this year-against last year's record of Euro 45 billion. "I think the final figure will be north of Euro 50 billion, perhaps even closer to Euro 60 billion," said Caroline Philips, head of securitization, debt capital markets at Eurohypo.

A number of deals have already been set for the fourth quarter, including a pan-European deal from Deutsche Bank (see related story, page 4) and a Euro 254 million transaction from Eurohypo's German Opera shelf. Eurohypo's offering is its first in Germany and is secured by two loans-the first is on 27 multifamily properties in Berlin and the second on an office property in Dusseldorf.

The German sector remains the major driver of CMBS, as sizeable amounts property continue to be bought and sold there, with the multi-family housing sector remaining a hot area. "Residential will continue to be strong, and I think there will be a pick up in the healthcare area, with hospitals and nursing homes being securitized," said Donald Belanger, co-head of European real estate finance and securitization at Credit Suisse. The major lenders in Germany are also looking to move into other areas, specifically Central and Eastern European countries such as Poland, the Czech Republic and Slovakia, he added.

Despite the expectation the market will finish strong, issuance has been slow in the last few months. This is in contrast to last year which was strong throughout the summer. "[The summer has] not been as hectic, as robust, as last year," Belanger said.

Belanger noted it is becoming increasingly challenging to securitize assets in the U.K., a factor that could dampen future issuance. "The lending fundamentals have changed and the demand for properties in the U.K., especially in London, has driven equity yields down," he said, adding the borrowing rate is higher than the equity return, so it is difficult for firms to lever returns. This phenomenon has worsened over the last year, and is affecting securitized lenders because they cannot be as aggressive as balance sheet lenders. Still, Belanger believes that issuance for 2006 would reach Euro 52 billion.

Samantha Rowan
Managing Editor
Real Estate Finance & Investment
Securitization News
(212) 224-3996



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