TY - JOUR T1 - Planning, Strategizing, and Anticipating: <em>Bringing a CRE CLO to Market</em> JF - The Journal of Structured Finance DO - 10.3905/jsf.2019.1.083 SP - jsf.2019.1.083 AU - Dennis J. Kelly AU - Christine A. Spletzer Y1 - 2019/10/22 UR - https://pm-research.com/content/early/2019/10/22/jsf.2019.1.083.abstract N2 - The authors discuss basic structural and process considerations relating to the execution of a commercial real estate collateralized loan obligation (CRE CLO) transaction, focusing on several key differences between CRE CLOs and more-standard CLOs, with a particular emphasis on the tax analysis. The authors explore the tax challenges of the REMIC and grantor trust structures, as well of the advantages and disadvantages of utilizing a qualified REIT subsidiary (QRS) structure or having the issuer domiciled outside of the United States in a traditional offshore CLO/CDO structure. In recent years, CRE CLOs have provided CRE CLO sponsors an important financing alternative for transitional properties, one which is nonrecourse to the CRE CLO sponsor and that generally offers better match-term funding and largely eliminates mark-to-market risks for the CRE CLO sponsor. CRE CLOs use much of the terminology and technology of middle market CLOs and achieve like goals for sponsors by achieving balance sheet leverage, but the nature of the collateral and the tax structure underlying the CRE CLO are fundamentally different from other CLOs. A potential CRE CLO sponsor should be aware that asset level disclosure in the CRE CLO market is far more granular than that for middle market CLOs. A potential CRE CLO sponsor should consider that significant company resources will be devoted to vetting the disclosure for a period of several months.TOPICS: CLOs, CDOs, and other structured creditKey Findings• In recent years, CRE CLOs have provided CRE CLO sponsors an important financing alternative for transitional properties, one which is non-recourse to the CRE CLO sponsor, which generally offers better match-term funding, and which largely eliminates mark-to-market risks for the CRE CLO sponsor.• CRE CLOs use much of the terminology and technology of middle market CLOs and achieve like goals for sponsors by achieving balance sheet leverage, but the nature of the collateral and the tax structure underlying the CRE CLO are fundamentally different from other CLOs.• A potential CRE CLO sponsor should be aware that the level of asset level disclosure in the CRE CLO market is far more granular than in the middle market CLO market. Given the transitional nature of the underlying properties, which require more due diligence by investors, together with short loan terms, investors demand significantly more disclosure than a middle market CLO offering. A potential CRE CLO sponsor should consider that significant company resources will be devoted to vetting the disclosure for a period of several months. ER -