Nassar Hussain, managing partner at Brookland Partners, answers SCI's questions

Q: How and when did Brookland Partners become involved in the CMBS market?
A: Brookland Partners has been lead financial adviser on over 25 CMBS transactions totalling in excess of €22bn since our launch in 2009. We act as financial adviser to government agencies, financial institutions, private equity firms, property companies and the vast majority of all the European commercial real estate loan servicers.

The team's combined experience in real estate totals 65 years and spans a number of jurisdictions, including the UK, France, Germany, Benelux, Spain, Switzerland, Scandinavia and the Middle East. As well as restructurings and work-outs, we advise on the sale and acquisition of real estate-backed debt in all its forms, equity and debt raising, loan origination and real estate investment and asset management.

Among the more notable restructurings we've been involved with, Karstadt is a highlight because of its various complexities and numerous stakeholders. The underlying operating business was insolvent and the capital structure included multiple junior debt tranches, as well as broadly distributed CMBS tranches.

As the business employed thousands of people and went through a sale during the restructuring process, it was a politically sensitive transaction. Part of the agreed restructuring was a managed sell-down of the department stores and this aspect has been successful, with a large part of the CMBS now having been repaid.

Four Seasons Healthcare is another highlight. After two difficult restructurings, the business was sold to Terra Firma and refinanced in the high yield market. The CMBS and the outstanding junior debt were fully repaid.

The Plantation Place restructuring grabbed the headlines when the proposed soft restructuring was blocked by a strategic investor interested in acquiring the building. We persuaded a large number of noteholders and the junior lender to notify the market that they would not support an enforcement or scheme of arrangement type structure. This provided the equity holders with sufficient time to sell their interest to a counterparty that recapitalised the transaction and the loan was refinanced by new owners, again resulting in a full recovery for all noteholders (see SCI's CMBS loan events database).

GRAND was the benchmark CMBS in Europe due to its size and the restructuring was notable for its complexity and use of an innovative scheme of arrangement. GRAND has now fully repaid, partially through IPO proceeds and a corporate loan.

The Tahiti CMBS secured on a UK hotel portfolio was restructured in 2010 and was recently refinanced in the banking market, again resulting in a full recovery. On CityPoint, there has been a structured enforcement where the transaction is in receivership, but the asset is being repositioned with a capex investment before it is expected to be sold.

In the rare cases when restructurings have failed, activist investors have usually been involved, who have not supported the restructuring. Nevertheless, the use of schemes of arrangement and structured enforcements have assisted in negating their impact.

Q: What are your key areas of focus today?
A: We recently established Brookland Financial, a new intermediary platform to connect parties in the real estate debt markets and assist in the structuring and execution of loans and CMBS transactions (SCI 10 July). There has been a significant shift in the availability of senior debt since January, as sentiment has turned increasingly positive. At the same time, CRE debt funds are becoming more successful in raising capital and asset managers now have far more capital to deploy.

Different investor types - including insurers, pension funds, hedge funds and sovereign wealth funds - are investing directly in real estate or through funds or sometimes doing both, tapping different maturities and parts of the capital structure. Each lender has a different approach, depending on risk appetite and jurisdiction. Some only look at specific assets and/or sponsors.

The European CMBS markets have also made a come-back this year, surprising many participants in the market. About €6bn of CMBS has already been placed this year; in fact, we saw more issuance in the first half of 2013 than over the last three years combined. The launch of CREFC's CMBS 2.0 Principles also assisted in trying to deal with some of the historical structuring issues faced by the CMBS markets.

The lending market, however, remains highly fragmented - so it's difficult for borrowers to source an optimum solution. In the past banks dominated the market, accounting for almost 90% of all CRE debt in Europe. Bank CRE teams are now thinner and often need assistance in originating loans and underwriting the more difficult assets.

Over the years, we've been asked to raise debt and have done so as an ancillary service. Historically we have been too busy with restructuring work to focus fully on this area - until now.

We believe that the significant capital coming into the sector, coupled with the lack of expertise and fragmented nature of the market has created an interesting opportunity for us to act as an intermediary and leading adviser in this sector. The aim is to provide borrowers with optimum debt terms from a compatible lender and then assist in structuring and executing the loan or CMBS transaction.

We have access to over 120 lenders and always create competitive tension when sourcing debt terms. If a borrower doesn't wish to use our services, we can also offer a loan through our loan origination arrangements with five diverse lenders.

Q: How do you differentiate yourself from your competitors?
A: The major differentiating factor between us and other advisers is our background in deploying capital. As a team, we have originated, structured, acquired, securitised or distributed over €60bn of real estate debt.

While at Merrill Lynch, I also advised various other lenders on their real estate debt platforms, including NM Rothschild and Capmark. Combine this with our experience in the last four years in restructuring some of the most complex real estate debt transactions and you will see that we have a very rounded and complete understanding of real estate debt from all perspectives.

As a team, we are very solution-oriented and want to achieve the right result for our clients. We work incredibly hard analysing deals but also understanding the motivations of all stakeholders and building numerous market relationships. While accountancy firms are generally good at giving advice in key areas such as insolvency, they don't always have access or relationships with the investor base and other stakeholders that is required to get a transaction across the line.

We have significant experience in underwriting and executing loans and CMBS transactions. We can pre-empt structural issues and suggest solutions and also draft documentation to provide additional protection, should the transaction run into credit issues.

In particular, valuable lessons have been learnt in respect of French safeguard and German insolvency issues. In addition, there is an increased focus on financial covenants, the security structure, entrenched rights of different parties, valuation rights and the identity of who the debt can be assigned to.

Q: Which challenges/opportunities does the current environment bring to your business and how do you intend to manage them?
A: As a small but growing business, it is essential for us to evolve not as the market changes but to have the foresight to evolve before the changes occur. This means adapting our focus, resources and skill-sets to suit the changing needs of our clients.

It is also important not to cover the market too broadly. We know what we are good at and we stick to these product areas.

As a small firm, we have won a significant amount of business away from large global investment banks, but this is only because of our sector expertise, our client dedication, independence, business results and business culture. Our motto is trust and expertise in everything we do.

Q: What major developments do you need/expect from the market in the future?
A: While real estate debt will remain dislocated for the next 18 months, bank disintermediation provides significant opportunities in raising and deploying new debt. There has historically been a shortage in the provision of senior debt, but successful capital raising by funds, the emergence of the new lenders and the re-emergence of CMBS has created liquidity and resulted in a material increase in deal flow in the space.

Participants are attracted by the risk/return opportunity: real estate debt pricing still offers good relative value compared to other forms of debt, such as high yield or infrastructure debt. Spread compression, however, has already started and will continue throughout this year.

Lenders are beginning to look at the broader risk spectrum, with capital being made available for secondary properties, where there is some void risk and for specialist sectors such as hospitality, healthcare and development. In recent months institutions and entrepreneurial investors have returned to the secondary sector in a significant way and the lenders are starting to follow. As most real estate is secondary, this will substantially increase the demand for debt.

The return of the European CMBS market has also helped sentiment. While US investors are also attracted by the yield on offer, the European CMBS market is still dominated by a small group of investors that can buy in significant volume. Historically, the CMBS investor base in Europe was much broader and more diverse.

The new investor base has far more control on how deals are structured and in many cases are making reverse enquiries.

Recently PIMCO and Marathon provided a bridge loan to Toys R Us to refinance the Vanwall CMBS. They securitised this exposure via the Debussy deal and retained the majority of their exposure at closing. This transaction showed how CMBS can offer more leverage than is available in the banking market.

DECO 2013-CSPK also only attracted a limited number of investors. However, Taurus 2013 (GMF1) was broadly distributed - believed to be at least 40 investors across the capital stack - benefitting from cross-over RMBS investors.

The profitability of the Taurus CMBS deal also woke the investment banking market up, with a number of investment banks now rebuilding their CMBS teams. There are likely to be a number of single-borrower CMBS transactions in the coming months of prime or near-prime commercial assets or multi-family assets. CMBS backed by secondary assets or conduit transactions involving pools of loans are unlikely until next year.

CS