Deutsche Bank’s €700m Vitus CMBS goes ‘red’ next week

Deutsche Bank is bringing the circa €650m to €700m German multi-family CMBS to market next week when the securitisation finally goes ‘red’ next week with cornerstone bond investor JPMorgan back on the ticket, CoStar News understands.

Vitus Group, the German residential property company, has been working with Deutsche Bank’s London office for more than 18 months to refinance the Barclays Capital-issued five-loan Centaurus Eclipse CMBS in December 2005, which matures on 15 September, in an agency-style securitisation.

CMBS agency transactions are where bonds are sold directly on behalf of the borrower. Therefore, Vitus’ cost of borrowing will be entirely determined by the price on the bonds. This means, as Deutsche Bank is not underwriting the loan, the bank is not taking any principal risk and will receive an agency, book running and arrangers’ fee for the securitisation.

Capital market transactions go ‘red’ when a preliminary offering circular is issued to prospective investors without guide pricing.

Vitus’ refinancing of the maturing debt is expected to repay Centaurus bondholders in time for the October interest payment date.

CoStar News first reported the CMBS refinancing strategy in April, and then was first to reveal on 12 June that cornerstone investor JPMorgan had waivered in its commitment to buying the bonds following the investment’s bank’s circa $2bn hedging trade losses.

JPMorgan has however returned which is understood to have been integral to Vitus and Deutsche Bank’s plan to press ahead with the agency CMBS.

Centaurus has an outstanding securitised balance of £580.13m, while there is a €122m mezzanine loan which is separately being refinanced in an expected similar-size.

Vitus’ total €1.15bn debt against the 30,000 German multi-family residential portfolio also includes long-dated, low interest government loans which are expected to remain in place. In addition, there are further senior lending balances of €187.8m outstanding, as well as €21.6m in drawn revolving credit facilities.

The five loan structure of Centaurus Eclipse CMBS, relating to separate underlying properties which were pooled together by Vitus, is expected to remain in place, but bond tranching is still being finalised in a deal which is expected to be rated by Standard & Poor’s and DBRS.

The existing borrower structure comprises GWEG, KWG, Bremische, BBG and Gladbau, which dates back to Blackstone’s December 2004 acquisition of WCM Beteiligungs and Grundbesitz-Aktiengesellschaft’s combined near 31,000 multi-family residential portfolio for €1.39bn, through two of the private equity giant’s real estate funds.

It was Blackstone’s first foray into Germany multi-family residential property, and proved a successful one, after timing the sale of a 75% stake in Vitus Group for €1.6bn three years later to a consortium of investors.

While Deutsche retains an equity holding, the stake is held by a separate department in the investment bank’s German headquarters, unconnected with the real estate finance team in London, which is acting as book runner and arranger.

Vitus is owned by a four-strong consortium, comprising Blackstone, Roundhill Capital, Aviva and Deutsche Bank’s German subsidiary.

Barclays Capital issued the original Centaurus Eclipse CMBS. After modest disposals, the Vitus multi-family 1.89m sq m residential portfolio comprised more than 12,300 in Kiel, 10,800 residential units in Bremen and another 7,300 in Mönchengladbach, as at last September’s IPD.

Collectively these three major city weightings reflect 81.55% of the total pool, which delivers a quarterly rental income of €26.1m.

In a two-part analysis of the German multi-family market, examining the near €11bn worth of CMBS loans which are due to mature before the end of next year and the likely €6bn in transaction volumes in the sector in 2012 alone, CoStar News highlighted the probability that one of the ‘big five’ maturing securitised portfolios would be refinanced through an agency CMBS.

At the time of Barclays Capital’s 2005, the portfolio was valued at €1.43bn, comprised of 30,619 residential units, 307 small commercial properties and 6,378 car parking spaces. At the last re-valuation, by Jones Lang LaSalle in December 2009, the value of the portfolio had increased slight to €1.47bn, reflecting the stability of the property segment.

The CMBS will be Deutsche Bank’s – and Europe’s – third since the global financial crisis, and will be closely watched by banks and borrowers alike who will all be keen for competitive pricing to be achieved for Vitus, as it could open the door to further agency securitisations in both the multi-family market and beyond as a possible solution to the looming wall of refinancing which is upon us.

All parties declined to comment.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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