B-Piece Buyers Gain Greater Influence

Here's an interesting story from today's Wall Street Journal about how B-Piece buyers are wielding more influence in shaping CMBS deals. (You need a subscription to read the entire article.)

An $887 million CMBS issue priced last week by Credit Suisse Group and Morgan Stanley is one example. The deal is set to close on April 18. That sale, just the third CMBS issue of the year, started with both firms trying to do separate deals that, taken together, totaled about $2.6 billion. Instead, they teamed up to cobble together a much smaller deal partly because Mr. Hillenbrand, a key buyer, made them throw out about $400 million of mortgages from the securitized pools because he saw them as too risky.

"We're the first one to take the bullet," says Mr. Hillenbrand, who bought $64.3 million of the riskiest portions of the deal. Among the loans he forced out: a mortgage on an office building in Fort Lauderdale, Fla., that was underwritten on the assumption that the building's occupancy rate would remain higher than that of the regional market.

Mr. Hillenbrand's push wasn't the only reason for the dramatic reduction in the size of the Credit Suisse-Morgan Stanley offering. Some lenders -- including the units of PNC Financial Services Group, Prudential Financial and Royal Bank of Canada -- that originally agreed to sell loans into the pool decided to hold them until the market recovers.

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