New European CMBS issuance rules 2.0

The April issue of Real Estate Capital confirms investor interest in reopening and reviving the European CMBS market.

Changes to the new style CMBS demanded by investors are around information disclosure, independence of advisers and most importantly control rights in events of default.

While some suggested changes are helpful such as the ability to sack property managers without cause after a loan default, with managers obliged to transfer information, selecting and negotiating with a new property manager can be a lengthy process and requires in-depth knowledge of what is needed to transform the assets into a performing loan.

Many requests address rights of the controlling class, noteholders should be aware though that where only a portion of the loan has been securitised this controlling party is often the B-noteholder or subordinate lender, who has different interests from the senior bond holders. In addition the senior noteholders are in most cases not real estate professionals.

Of course terms of engagement of rating agencies are not a secret and follow defined fee structures. It is up to investors to enquire.

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