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Repeat Institutional Borrowers Heating up Commercial Mortgage Bond Market

Millennium Partners, Workspace Property Trust Latest Using New CMBS Financing to Repay Previous Deals
July 11, 2018
One Liberty Corporate Center in Edina, Minnesota, is Workspace Property Trust's largest office building.




The commercial mortgage backed securities (CMBS) market has heated up since summer kicked off, with 39 new deals emerging since June 1. In a recent twist, the market is seeing institutional investors packaging property loans in a new CMBS to refinance portfolios that had been previously financed in the CMBS market.

Private-label, single-borrower deals backing portfolios from Workspace Property Trust and Millennium Partners are the two latest examples of the trend this week. They join deals backing Greenfield Partners and Brookfield Asset Managementproperties, which we reported on in the past two weeks.

In June, CMBS private-label pricing volume totaled $11.5 billion, the highest monthly volume the market has seen since February 2015, according to Kroll Bond Rating Agency (KBRA). June's robust volume brings the year-to-date total to $40.3 billion, up 18.4 percent year-over-year.

"Based on the forward pipeline, it doesn't look like the CMBS market will be on summer break for the next few weeks," KBRA analyst reported. "We are aware of as many as a dozen single-borrowers, including several single-asset deals and up to six conduits that are expected to announce through the first week of August."

There is not much visibility of deal flow through the remainder of August, KBRA reported, adding that perhaps that is when deal flow could cool off.

Morningstar CMBS analysts reported this week that borrowers seeking to lock in low rates are one source for the increased activity. In addition, a growing number of yield-hungry investors tied to large projects that may be viewed as too capital-intensive by bank lenders have turned to the CMBS market -- or in the case of Workspace Property Trust and Millenium Partners, turned to it again.

Last month, Morgan Stanley originated a $710 million fixed-rate debt package on eight retail and office properties owned by a joint venture led by Millennium Partners. The investment banker is securitizing a portion of the long-term debt, which will likely hit the market this month: Morgan Stanley Capital I Trust 2018-MP.

The financing was used to pay off debt on the similarly named Morgan Stanley Capital I Trust 2014-MP, a $463.9 million deal.

At the time of KBRA's last review of the offering in September 2017, the portfolio's value was estimated at $639.6 million and generated annual net cash flow of about $47 million.

J.P. Morgan Chase Commercial Mortgage Securities this week filed preliminary paperwork for a new CMBS offering backing a package of loans on 147 office, flex and retail properties in four states owned by Workspace Property Trust.

Late last month, Workspace Property Trust, a private real estate investment firm led by former Mack-Cali Realty executives Thomas Rizk and Roger Thomas, lined up $1.275 billion in portfolio financing from JP Morgan Chase Bank.

The proceeds from that financing were used to pay off a CMBS loan backed by 108 of Workspace's properties. As of September 2017, KBRA valued that portfolio at $689.9 million and calculated net cash flow at $66.9 million.

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