Exporting U.S. CMBS solutions to Europe

The U.S. market is CMBS-oriented, with actually around 50/50 bank-syndicated loans versus loans that require some aspect of securitization. In Europe, the depth of the market is not on the CMBS front: the market is very small with only around 10 deals per year. Europe is a 100 percent bank syndication market and very few mezzanine structuring capabilities exist, but this is coming. The reason is that the leverage was not required in the European markets. So, there was no need to tranche the transaction in the same way as in the U.S.. There’s so much liquidity in the market right now with the European Central Bank scheme that there’s fierce competition within the loan markets. On the mezzanine side, borrowers nowadays are quite conservative in terms of leverage, requesting generally around 60 percent.

We now observe U.S. funds developing the mezzanine capability on the debt side - which did not exist in Europe while already existing in the U.S. for a while - so they are hungry for mezzanine pieces, but no one is feeding them in Europe. So, in tranching a transaction and proposing an alternative solution to our clients than a 60 percent loan-to-value senior debt structure, it starts to make sense to the borrower. So that is why the market is shifting in Europe. The demand is there, and we need to create these products and embed them into traditional loan arrangements. It’s slow but it will accelerate in the next year or so, and we want to be ahead of the curve. We intend to export more of the structuring solutions we have in the U.S. to Europe.