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Mitsubishi and Principal Financial Launch U.S. CMBS Operation

Deal Comes As CMBS Lending Remains Strong So Far in 2018
July 5, 2018
Photo credit: MUFG Americas

MUFG Union Bank, a subsidiary of Tokyo-based Mitsubishi UFJ Financial Group, and Principal Real Estate Investors have decided to jump into the hot U.S. commercial mortgage-backed securities market.

The San Francisco-based bank and the Des Moines, Iowa-based Principal Financial subsidiary have formed MUFG Principal Commercial Capital, a lending platform focused on originating and securitizing loans in the CMBS market based in New York.

"Entering the CMBS market is a key strategic initiative for MUFG Union Bank," Phil Miller, managing director and head of CMBS activities at MUFG Union Bank, said in announcing the venture. "By teaming up with Principal Real Estate Investors, we gain tremendous CMBS experience and resources to complement the bank's strong balance sheet and loan sourcing and bond distribution capabilities."

Miller is leading the launch of MUFG Principal Commercial Capital, along with Margie Custis, managing director for Principal Real Estate Investors.

Both parties will source loan opportunities, participate in credit decisions and execute securitizations for the platform. MUFG Union Bank will fund the loans and retain the associated risk-retention investments. Principal Real Estate Investors will service the CMBS loans and serve as primary servicer post securitization.

Principal Real Estate Investors was one of the early investors in the CMBS market. It conducts independent research on more than 600 CMBS bonds per year and manages about $7 billion in CMBS assets.

Commercial mortgage-backed securities issuance has been strong throughout 2018, despite some headwinds, noted Morningstar Credit Ratings in a report last week. There's been concern over rising interest rates and the Federal Reserve's decision to reduce its balance sheet. And there are worries that some markets may have overbuilt. Still, the ratings firm expects the market to continue to be robust through the third quarter.

By the end of June, new CMBS issuance totaled $44.30 billion, an increase over the $34.45 billion issued in the first half of 2017, according to Morningstar, which sees several factors backing the market's momentum, including the relative ease for lenders in re-underwriting collateral included in previously securitized offerings, gaining better terms from borrowers, and higher-quality assets backing the deals.

Fueled primarily by loans on trophy skyscrapers in major metropolitan areas, office loans made up the largest portion of total CMBS issuance, accounting for $4.5 billion, or 29.1% of 2018 volume year to date.

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