The Natixis real estate debt team in the US will remain committed to commercial mortgage-backed securities (CMBS) lending long-term, despite new risk retention regulations. They see regulations as an opportunity and are fully prepared to retain 5% of deals. Natixis provides both CMBS and balance sheet loans from the same platform with flexibility, including the ability to bifurcate loans between the two. This unified approach helped them continue lending through the financial crisis and allows them to better serve client needs.

1. REAL ESTATE CAPITAL DECEMBER/JANUARY 2016/201710
Despite new regulations going
into effect this Christmas Eve,
the Natixis real estate debt
team for theAmericas – which
originates both CMBS and balance sheet
loans nationwide – will remain a CMBS
lender for the“long haul,”the group’s exec-
utives tell Real Estate Capital at its Midtown
office.
While Sixth Avenue below teems with
yellow cabs and tourists, the head of real
estate finance Americas at Natixis, Greg
Murphy, says his group sees the impend-
ing Dodd-Frank Act’s risk retention
requirements, which will force lenders to
retain five percent of each CMBS deal for
five years, as an opportunity. So far this
year, the team has watched as six firms
which were CMBS originators last year
retreated from this space, but Natixis
will not be next.
“We see the regulations as being an
opportunity because we remain compet-
itive with the capital and support that we
have from Natixis and Groupe BPCE,”says
Murphy,who has led the team since 2000.
“We’re going to be in this for the long haul.
We are fully prepared to retain five percent
of any transaction that we do.”
The Natixis real estate financeAmericas
team, comprised of 50 professionals with
offices in NewYork and LosAngeles, is
close to originating about $4 billion by the
end of this year, roughly divided “50/50”
between floating rate balance sheet loans
and fixed-rate CMBS debt.That volume
compares with $3.2 billion in loans the
firm did last year and $3.5 billion in loans
the firm did in 2014.
But the sheer deep-pocket capital
resources stemming from the group’s giant
parent company, the Paris-based investment
and banking firm Groupe BPCE, is not
the only reason for the real estate group’s
confidence in CMBS and the product’s
future in general. Its track record through
good times and bad, the flexibility of its
lending platform, and the signs that CMBS
– despite a dip in originations and new risk
retention – will remain a sought-after debt
product in the coming years, keep the firm
optimistic.
FLEXIBILITY MATTERS
One of the unique aspects of the Natixis real
estate team in theAmericas is that all of the
group’s CRE debt products are offered from
the same platform by the same bankers,
compared with the many banks that have
one group in charge of CMBS,a separate
group for balance sheet lending,and another
for other types of real estate finance.
“Last year we did a construction loan,a
transitional loan,and a CMBS deal all for the
same client,”says Murphy.“I don’t know how
many shops can say that.”
The Paris-based investment and banking firm’s US real estate
debt team succeeds by unifying its balance sheet and CMBS
lending and says the mortgage-backed securities market will
endure new regulations.Justin Slaughter reports
In it for the long haul
Profile
NATIXIS
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2. WWW.RECAPITALNEWS.COMDECEMBER/JANUARY 2016/2017 11US real estate debt team (l - r): Michael Magner, Greg Murphy, David Perlman, Jerry Tang
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3. PROFILE: NATIXIS
REAL ESTATE CAPITAL DECEMBER/JANUARY 2016/201712
As far as its CMBS lending,the group
lends on all income-producing property
types nationwide.
“Perhaps,some might think a given prop-
erty is a less obvious choice for a CMBS loan,
but I think quite often it’s that we are able to
understand the property and the borrower’s
plan,and from that we are able to tailor a
structure that makes that loan work in the
market,”says Murphy.
The group’s CMBS lending provides five-
to-ten-year senior mortgage and mezzanine
loans with a minimum of $2 million.The
interest rates range from 3.5 to 5.5 percent
and loan-to-value (LTV) ratios go up to 85
percent.
On the other hand,the firm’s portfolio
balance sheet lending platform similarly pro-
vides senior mortgage and mezzanine loans
with LTVs up to 85 percent.The balance
sheet loans only range from two to five years,
but also back all property types (including
non-income-producing) and start at $20
million.The interest rates for the balance
sheet loans are 1.75 to 6 percentage points
above Libor.
“As a senior banker,I think it’s a benefit
that we don’t sit here with a set script of
interest rates published every day and say
‘this is our rate today,’”says David Perlman,
vice president and co-lead floating rate desk,
“because that’s just way too generic for the
type of business or client interactions that
we have.”
Michael Magner,managing director,senior
banker,says providing CMBS and balance
sheet lending“under one umbrella”allows
the group flexibility in offering clients both
the interest rate certainty of CMBS with the
same service aspects of balance sheet.
Last September,when the group provided
a $315 million fixed-rate loan to Savanna
Real Estate and private investors on One
Court Square (or“Citigroup Building”)
office tower,they were able to bifurcate
the loan and hold one piece,or controlling
note position,on their own balance sheet.
This gave the team a relationship where the
borrower could come directly to them as
issues arose on the transaction.
“And that was something that other com-
petitor shops could not offer,”says Magner.
“They were either going to go all balance
sheet or all CMBS.”
In a similar deal thisAugust,Natixis
bifurcated a $210 million fixed rate loan on
the corporate headquarters of the Danish
firm Novo Nordisk in Princeton,New Jersey,
and the group was again able to retain an
unfunded commitment on its own balance
sheet,while securitising a $168 million
portion in its CMBS deals – providing the
interest rate certainty that borrowers typi-
cally get from CMBS loans.
Perlman says that though they might seem
like a self-contained dedicated real estate
group,the team often taps into other work-
ing groups in the bank to work on clients’
needs,which includes asset management to
solve any issues with the property itself.
“We pull in teams from the credit swaps
desks or other teams within the bank for our
work,”says Perlman.
Unifying the CMBS and balance sheet
lending under one umbrella also allows the
firm to offer some CMBS products that
other banks can not,including the capability
to season fixed-rate loans in its portfolio for
up to one year,says JerryTang,director and
head of CMBS securitisation.
Last February,the group originated a
$40 million loan on the Sixty SoHo hotel in
Lower Manhattan and then securitised that
loan an entire year later,allowing the bor-
rower the capital and time to renovate and
stabilise the property.Tang says this is unlike
many CMBS shops that are in a“moving
business”and move a loan into a security in
less than three months.
“Normally,that loan will go to a debt fund
for a bridge loan,but we were able to walk
the rate as a CMBS loan for the sponsor,
holding that loan for more than 12 months,”
he recalls.“So that’s one thing that differenti-
ates ourselves and allows us to acquire higher
quality assets in gateway markets.”
What further differentiates his group
from other CMBS shops is how the firm
quotes deals,using its own proprietary
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4. WWW.RECAPITALNEWS.COMDECEMBER/JANUARY 2016/2017
PROFILE: NATIXIS
13
internal work flow system,NXS Live,to
process deals,which allows the group to turn
quotes around in 48 hours,addsTang.
But on top of a flexible staffing and
quickly turned-around quotes,the group can
also offer access to different sources of capi-
tal,not only from its own banking institu-
tion,but also from hundreds of other banks
in terms of syndication,debt funds in terms
of selling B-notes and the high yield portion
of the capital stack,insurance companies,
and overseas capital.
Tang adds that as a large,international
institution,the team brings in capital from
non-US sources to optimise the execution,
and“that’s a significant part of who we are”.
Natixis has an extensive global network with
offices in 35 countries.
“We can put together the entire capital
stack,from mezzanine or B-note at the
bottom to senior note at the top,”he says,
“whether it’s all Natixis or we bring in other
pockets of capital.”
The combination of balance sheet and
CMBS lending also allows the team to take
down an entire loan,and then find the cap-
ital home that it needs,whether it’s fixed or
floating rate,adds Murphy.
ThisApril,the group partnered with
Oaktree to provide a $335 million senior
loan to Cindat Capital Management Limited
on a seven-hotel portfolio in Manhattan by
syndicating the loan down enough so that
interested participants,which previously did
not have the capability to take on the entire
loan,were able to close the loan.
“There are a number of debt funds in
the market that will take the mezz and then
try to find the senior;we can take down
the whole transaction and do the reverse,
putting together the senior syndicate and the
mezzanine investors,”says Magner.
The group is also active in the commercial
real estate CLO space,which is a sector they
see as having tremendous potential.As of
Q3 2016,Natixis ranks number one as CRE
CLO underwriter and lead manager.This
year the group was lead manager on two
CRE CLO deals,a $250 millionA10 2016-1
deal and the $471.5 million Fort CRE
2016-1 LLC deal.
LENDING THROUGH CRISIS
This“under one umbrella”flexibility allows
the group to respond to not only the
individual needs of clients,but also to the
macro market conditions,and it even
allowed the group to keep lending through
the last financial crisis.
“What we were able to do here under
Greg’s leadership was to quickly change
our lending strategy as the CMBS market
was weakening,” says Magner.“At the same
time we had the strength to keep lending
into the balance sheet market right
through the downturn.”
Since the financial crisis of 2007 and
2008,the team does a lot of balance sheet
loans in emerging markets like Mid-Town
South or Brooklyn,and transitional projects
like offices redeveloping into new centres for
business,often in the creative media spaces.
For example,the firm is providing an $85
million floating-rate loan on the conversion
of the Uline arena inWashington DC (an
old concert venue where the Beatles did
their first performance in the US in 1964)
into office and retail,while the group also
provided a $190 million loan withWells
Fargo to the Rubenstein Group on an office
development at 25 Kent Street in Brooklyn
this year.
The group has also done CMBS deals
in every state except for the prairie-filled
Western state ofWyoming.On the balance
sheet side,the team has predominantly done
deals in the five boroughs of NewYork.On
top of the $335 million in financing for
Cindat’s seven Manhattan hotel portfolio
“LAST YEAR WE DID A
CONSTRUCTION LOAN, A
TRANSITIONAL LOAN, AND
A CMBS DEAL ALL FOR
THE SAME CLIENT. I DON’T
KNOW HOW MANY SHOPS
CAN SAY THAT”
Greg Murphy
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5. PROFILE: NATIXIS
REAL ESTATE CAPITAL DECEMBER/JANUARY 2016/201714
deal,the group also provided a $57.5 million
loan to LongWharf Real Estate Partners and
Treeline Companies to reposition an office
building in Downtown Brooklyn and a $101
million financing on a commercial condo-
minium in the Financial District of Lower
Manhattan this March.
Perlman says there are different markets
and different property types the group likes
more than others,but the real focus is on
finding good credit and good sponsorship.
“For us the focus is on credit,on putting
in the right structure,”he says.“And for
that we look to the sponsor,try to under-
stand their history with the asset,how they
performed during the downturn,and how
they responded to issues.That’s important
to us because we want to have experienced
sponsorship that we can work with when
markets change.”
But the group has also provided loans
on a hotel in Denver, Colorado, a retail
property in LasVegas, an office in Seattle,
and another retail in Florida and else-
where across the nation.
As of 30 September, the group had
originated over $35 billion of loans since
1999, including $18 billion of fixed- and
floating-rate commercial real estate loans
securitised since 1999.The group has
done over $6.7 billion of portfolio lending
since 2009.
CMBS IS HERE TO STAY
The team’s CMBS lending has come down,
however.Of the total US CMBS originations
in the first three quarters of this year,Natixis
ranks number 11,with $1.47 billion,
according to Commercial MortgageAlert.That
number is slightly down from its total of
$2.25 billion over the first three quarters last
year.The group’s CMBS volume was $2.6
billion in 2015 and $1.4 billion in 2014.
But this is likely related to a decrease
in the CMBS market overall.As of 14
November,the total amount of CMBS issued
this year in the US has only reached $52.6
billion,according toTrepp,while an analyst
from that agency has predicted that total
issuance will not even reach $65 billion by
the end of the year – a 30 percent drop from
last year’s total of $95.1 billion.
That’s a low threshold compared to
CMBS at the peak of the market in 2007,
when $230 billion of CMBS was issued.
After the financial crash,issuance collapsed
to essentially zero by 2009;but the CMBS
market rebounded in the years since,with
$90 billion issued in 2014 which creeped
upwards to $95 billion the next year.
The product’s share of the commercial
real estate lending market has also dipped.
CMBS captured just 9 percent ($16.47
billion) of the $183 billion in first mortgage
US originations during the first two quarters
of the year,representing a significant decline
from its 2012 totals,when CMBS lenders
captured 23 percent of the market.
But that doesn’t mean other lender groups
are shoving CMBS out of the CRE debt
space for good,according to the Natixis
team.Many life insurance companies are
already lending at a peak volume histori-
cally,while as many as 33 commercial bank
lenders have over 300 percent CRE to
capital ratio.Meanwhile,many debt funds
can’t afford to do ten-year loans like CMBS
because of the cost of capital.
For these reasons,the team predicts CMBS
will rebound from the likely $60 billion to
$65 billion total originations this year to as
high as $100 billion in the following years.
But the likelihood of CMBS increasing
its share of the US CRE market in the short
“WHAT WE WERE ABLE TO
DO HERE UNDER GREG’S
LEADERSHIP WAS TO
QUICKLY CHANGE OUR
LENDING STRATEGY AS
THE CMBS MARKET WAS
WEAKENING”
Michael Magner
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term will potentially be impacted by the
uncertainty surrounding two things:the new
risk retention rules and the so-called‘wave
of maturities’of ten-year vintage CMBS
originated at the peak of the last cycle.
While the team says it’s fully prepared to
retain five percent of all of its future CMBS
deals,the only such deal to have interest
holdings that would fulfill the US risk
retention rules is the $871 million deal that
Wells Fargo originated thisAugust.And the
question remains about what structure will
most lenders adopt.
“The main thing with risk retention is
no one yet really knows which structure
will dominate eventually,or if there will be
a smorgasbord,”says Murphy.Lenders will
have a choice of retaining a“horizontal”or
“vertical”slice of capital or a combination
of both.
And yet,the anticipation of risk retention
rules coming into effect before the end
of the year – meant to incentivize higher
quality loans by exposing originators to the
credit risk of their originations – does not
appear to have a current pricing effect on the
market,the team says.
Murphy expects his group to continue its
activity in the CMBS market gateway and
secondary markets nationwide,providing
loans from $2 million to $400 million,with
an average loan size of $15 million.
But long before the uncertainty around
risk retention rules grew,a fear was brewing
that the so-called‘wall of maturities’of
vintage CMBS loans originated with high
leverage in the frothy days from 2005 to
2008 were going to have a hard time finding
lenders willing to refinance.But so far,the
fears seem to be unwarranted.
“As far as the‘wave of maturities’of CMBS
vintage,sponsors are much more comfort-
able now that these loans can be refinanced,
and I think low interest rates have helped,”
says Perlman.
Though CMBS origination volumes
may have reduced,underwriting has only
improved,according to the team.The
average LTVs in CMBS in the last year have
dropped six to seven percentage points
to the high 50s.That’s compared with the
average LTVs in the mid-60s the team saw
about a year ago and the mid-70s in 2006
and 2007 originations.
Even in the floating rate space,two years
ago the general structure there was relatively
worse,with much tighter spreads and higher
leverage of five or more percentage points
than today,the team says.But now,even
though the real estate market could get
hurt by higher interest rates,the market has
created a self-discipline that has kept spreads
not too tight and leverage in line.
“Sometimes I hate to use the word opti-
mistic,but I feel very different than I did in
2007,”says Murphy,“I’ll tell you that.”n
Magner and Murphy have been on the
team for more than 16 years together.
Murphy has been in commercial real estate
for 23 years, working on some of the very
first CMBS deals to hit the market, while
Magner has been in commercial real
estate lending for close to 30 years. Tang
has been with the group for ten years and
Perlman has been with the group for two.
The real estate finance group started
in 1999. The group has almost 50
professionals and two offices, one in New
York and one in Los Angeles. Natixis has
over 600 employees in New York City.
Natixis overall has 16,000 employees, while
Groupe BPCE has 108,000 employees.
Natixis is the international corporate,
investment, insurance and financial services
arm of Groupe BPCE, the second-largest
banking group in France with 35 million
clients and 8,000 branches. Natixis is active
in 35 different countries. Groupe BPCE
has nearly $700 billion in deposits, 8,000
branches, larger than many US banks
(Wells Fargo has roughly 5,000), and 36
million clients.
WHO IS NATIXIS?
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