Credit Suisse brings property CLOs popular in US to Europe

Bloomberg

Credit Suisse Group AG completed Europe’s first commercial real estate collateralised loan obligation, according to lawyers involved in the deal, breaking into a market that’s more than doubled in the US.
The bank sealed a deal with commercial real estate lender Starz Real Estate, according lawyers at Reed Smith who represent the borrower. The agreement, denominated in euros and pounds, is worth the equivalent of $297 million. A spokeswoman for Credit Suisse confirmed the deal had settled.
The complex securities bundle commercial real estate loans into bonds and initially fell out of favour following the 2008 financial crisis. In recent years, they’ve staged a comeback in the US, where year-to-date issuance stands at $41.3 billion, up from the previous record of $19 billion set in 2019, according to data compiled by Bloomberg.
There’s now speculation that there could be a similar surge in Europe.
Investors have clamoured to buy the securities because they offer higher yields than other forms of debt and stand to benefit from a recovering economy.
The securities are backed by properties being upgraded or repurposed, such as malls being turned into apartments, a scenario that has grown more common as pandemic has changed many aspects of daily life. Because the real estate is in a transitional period, the loans aren’t eligible for inclusion
in the traditional commercial
mortgage-backed securities.
The deal reflects high demand for illiquid investments across dent and equity markets, and the difficulty that investors face with tight investment grade-spreads, said John Roe, head of multi-asset funds at Legal & General. “It seems likely we’ll see more in both real estate debt and more broadly in liquidity transformation,” he said.
The Credit Suisse transaction includes residential properties in London and hotels elsewhere in the UK. The deal also includes loans backing properties in Spain, Ireland and the Netherlands.