Morgan Stanley Mortgage Servicing team shrinks as ELoC bidders line up

Morgan Stanley has lost two further staff in its in-house European commercial real estate loan servicing team, with a decision over the long-running possible sale of the predominantly CMBS loan servicing book still seemingly hanging in the balance.

Morgan Stanley (correct)Elmar Schoonbrood, Morgan Stanley Mortgage Servicing’s former head of special servicing, has joined Oaktree Capital Management’s loan servicing subsidiary Sabal Financial as head of loan workout last week, while former director Nicolas Cucheval is set to join Situs Asset Management starts next week.

Sabal Financial runs the loan workout for Lloyds Banking Group’s Project Harrogate, which Oaktree won last August paying around £260m, with around £130m of finance from JPMorgan.

The two departures leave Morgan Stanley’s loan servicing team light in special servicing expertise, while its book of CMBS transactions now stands at 11 – comprised of 9 true sale transactions through its European Loan Conduit (ELoC) CMBS conduit programme and two agency deals, Fordgate 1 and Patrimonio Uno. (See below for details)

Morgan Stanley’s loan servicing platform has been the subject of a potential sale for more than a year, following the decision in early 2012 to classify European real estate as “non-core”.

In the intervening period, four serious contenders have emerged as potential buyers of Morgan Stanley’s remaining platform and team.

The prospective buyers comprise: Mount Street, the newly-launched real estate loan servicing platform founded by Ravi Joseph, Bill Sexton and Paul Lloyd; Capita Asset Services; C-III Capital Partners, ran by Island Capital Group CEO Andrew Farkas; and CW Capital, owned by Fortress Investment Group until its sale to Walker & Dunlop last September for $254m in cash and stock.

Morgan Stanley’s remaining ELoC deals comprise: EloC 16, 19, 22, 23, 24, 25, 26, 27 and 28, CoStar News understands.

Last year, as the owner of virtually all the bonds in EloC 29, Morgan Stanley collapsed the structure to migrate the debt onto its balance sheet. The outstanding €693m EloC 29 Fordgate loan, also known as Project Vermeer, is secured by a portfolio European offices, is close to being acquired by Fortress.

The aggregate unpaid balance of all 11 deals is thought to be around €3.7bn, not inclusive of the B-notes, while Morgan Stanley’s loan servicing team also manages a small number of syndicated debt positions.

The probability of a sale depends could depend upon the price offered, relative to its value to support its renewed ambitions to lend to European real estate, following Morgan Stanley’s bold lending return in the financing of Blackstone’s purchase of the Adelphi, off the Strand in London, with £190m, which is expected to be predominantly syndicated.

On the balance of expectations, an eventual sale is considered probable but not definite, while motivations among the four possible buyers of the Morgan Stanley platform book vary.

For Mount Street, C-III Capital and CW Capital, the book purchase would represent a foothold in the European commercial real estate loan market and could act as a catalyst to establish a track record to win further deals to build a broader business in loan portfolio workout mandates, as well as bilateral loan servicing for new lenders and debt funds.

CW Capital is likely to be particularly interested in the proportion of the underlying CMBS loans in the five deals which are, or might in future, convert into higher-margin special servicing business, in line with its notable US expertise.

Capita Asset Services, now the largest fully independent European real estate loan servicer after winning a mandate from NAMA, would likely be interested in a further building its loan servicing book, after the acquisition of Barclays Capital’s ECLIPSE loan servicing platform two years ago.

Starwood Capital’s acquisition of LNR Property which closed in January, through which subsidiary LNR Partners Europe owns Hatfield Philips, is expected to either predominantly run Hatfield as a tied agent, akin to Lone Star’s management of Hudson Advisors. As a result, Hatfield is now an unlikely interested buyer for the MSMS platform.

MSMS’ outstanding CMBS loan servicing book

Morgan Stanley Mortgage Servicing (MSMS) is servicing 10 remaining European CMBS transactions, comprised of a nominal balance of £1.94bn (€2.28bn) across six UK deals and €1.43bn (£1.22bn) in four European deals.

This takes the total securitised balance to around £3.16bn or €3.71bn. In addition, MSMS manages the underlying B-notes and several bilateral syndicated senior and junior European commercial real estate loans.

  • ELoC 16 –  £780m outstanding (secured on the BBC building in Regent Street)
  • ELoC 19 –  £52.6m outstanding
  • ELoC 22 – £26.9m outstanding (Mapeley Colombus loan)
  • ELoC 23 – €118m outstanding (Eurocastle Truss portfolio for 70% of pool and another)
  • ELoC 24 – £165.8m outstanding (15 Westferry Circus and South Quay Plaza)
  • ELoC 25 – €552m outstanding (loans across France Germany Italy)
  • ELoC 26 – £228m outstanding (Access Self-Storage portfolio and Nextra loan)
  • ELoC 27 – £429m outstanding (Citypoint Tower)
  • ELoC 28 – €537m outstanding (German, French and Netherlands loans)
  • FOX (Fordate  1) £262m
  • Patrimonio Uno  €277.6m

All parties declined to comment.

About CoStar News

Finance Editor, CoStar News
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