German CMBS Drives European Issuance to Four-Year High, S&P Says

Sales of commercial mortgage-backed securities in Europe have accelerated to the highest in four years, fueled by notes secured against housing loans in Germany, according to Standard & Poor’s.

European issuance of CMBS totaled 5.4 billion euros ($7.2 billion) in the first half of the year, up from 3.2 billion euros for all of 2012 and the most since 2009, according to an S&P report published yesterday.

Investors in CMBS are seeking mortgage-backed bonds that have low leverage, good quality underlying assets and a history of reliable performance, S&P analysts wrote. The stable cash flows of German multifamily CMBS, which are backed by pools of residential properties rented out by commercial landlords, have helped refinance deals maturing in 2013, according to the report.

“The word CMBS conjures up commercial properties in dark parts of Europe, but the multifamily deals are backed by housing for average Germans who have a huge incentive to keep up payments as this is their primary residence,” said Henry Cooke, the London-based head of European ABS at Threadneedle Asset Management Ltd., which manages about $128 billion of assets including European securitizations.

German property owner Gagfah SA issued the largest European CMBS this year, raising 2.1 billion euros from the German Residential Funding 2013-1 Plc transaction to repay a previous mortgage-backed bond. BGP Investment Sarl, a real estate investor based in Luxembourg, is seeking to raise about 386 million euros of CMBS secured by German residential mortgages.

“German multifamily deals have dominated European CMBS and appeal to investors because they have stable cash flows and they performed reasonably well throughout the crisis,” Arnaud Checconi, a London-based director of European structured finance research at S&P, said in a telephone interview.

In the U.S., CMBS issuance has been boosted by a recovery in property prices, according to S&P. It forecasts sales, excluding those from government-sponsored agencies, to reach $65 billion by year end, exceeding the $48.4 billion sold in 2012.

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