Rialto Capital has agreed to buy the junior portions of two upcoming conduit offerings, while Eightfold Real Estate Capital has circled the B-piece of a third deal.
Rialto’s purchases involve a $1.25 billion offering led by J.P. Morgan and Ladder Capital, and a similarly sized deal led by Wells Fargo and RBS.
Eightfold, meanwhile, has circled the bottom piece of a $1.25 billion offering by Goldman Sachs, Citigroup, MC-Five Mile, Starwood Mortgage Capital and RAIT.
Two of the three B-piece agreements — Eightfold’s purchase and Rialto’s contract with J.P. Morgan/Ladder — were awarded on a "negotiated" basis. That means the issuers didn’t hold multi-party auctions. Instead, they approached Eightfold and Rialto directly and came to terms.
Issuers often avoid auctions to simplify the sales process. The maneuver can also lead to a better execution, because the buyer might be tempted to pay a little more or accept questionable collateral loans if it means bypassing a bidding contest. On the other hand, the issuer also risks leaving money on the table if it fails to capture a sudden increase in B-piece valuations that an auction would have uncovered.
In any event, negotiated sales enable issuers to shore up their relationships with B-piece investors that may have been crowded out of the market in recent auctions.
Rialto has landed 10 B-pieces so far this year. Eightfold has circled three.
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