Vertical Capital has sold the entire equity component of its first commercial real estate collateralized debt obligation, the first time that a CRE CDO has done so.
Demand for the deal’s equity stake was driven by its collateral. It was sold in less than two weeks. About 54% of the deal was comprised of large loans from commercial mortgage-backed securities deals. It also included a 16% CMBS conduit bucket and a 15% synthetic concentration. Because of this, more traditional real estate investors took great interest in the equity stake, which required real estate due diligence rather than a structured finance perspective. Bear Stearns underwrote the deal.
Sponsors typically retain all or most of the equity stake in CDOs. Until now, only about 30% to 70% of a CRE CDO’s equity component has been sold, traders said. But more sponsors are expected to actively market their equity stakes to third parties, particularly to real estate investment trusts.
Unlike other CRE collateral managers, Vertical is a unique issuer and does not use its CDOs as funding tool or own equity in any of their individual deals. An official at Vertical declined to comment as the deal has not yet closed. Bear Stearns officials did not return calls.