* Current proposals for “simple and transparent” securitisation cannot accommodate securitised European CRE debt
* A healthy, sustainable CMBS market would nevertheless improve transparency and liquidity for non-bank investors in CRE debt, while also reducing the concentration of CRE exposure in Europe’s banking system
* CRE and CMBS therefore need to be explicitly recognised as needing further work in the Commission’s forthcoming comprehensive securitisation package
The Commercial Real Estate Finance Council Europe (CREFC Europe) has called on the European Commission to include a special mention for commercial real estate (CRE) debt and commercial mortgage-backed securities (CMBS) when it releases its “comprehensive package” for securitisation, due to be published with the Capital Markets Union action plan in September or October 2015.
The trade association acknowledges that it didn’t manage to persuade regulators to design criteria for “simple and transparent” securitsation that could accommodate securitised CRE debt. The asset class lacks the granularity and homogeneity of many other kinds of asset backed securities (ABS), and the characteristics of CRE loans are inevitably a function of the underlying CRE investment market.
But most of the CRE-related problems that emerged in the crisis related to far larger exposures on bank balance sheets, not to securitised CRE debt. It’s important that regulators find ways to encourage the growth of a sustainable and responsible securitised CRE debt market, allowing risk to be distributed in a comparatively liquid and transparent form out of the banks and into the hands of non-originating investors.
Peter Cosmetatos, CEO of CREFC Europe, said: “If the Commission’s proposals for securitisation are to be truly comprehensive, they have to work with the industry to find a way to promote healthy securitisation practices and markets for asset classes like CRE debt and CMBS, which are effectively excluded from the “simple and transparent” framework. That would support financial stability, as well as the ability of the financial system to do its job of connecting investment capital to real economy businesses seeking credit”.
CREFC Europe’s letter to the Commission was accompanied by its January 2015 submission to the EBA, which explained both the strategic policy considerations and why particular criteria cannot work in relation to securitised CRE debt and need to be approached in a more flexible way for this asset class.