I've talked to my company's advisors at UBS and my own advisor and no one seems to have access to Freddie Mac's high yield debt (like, the B-piece/subordinate pieces yielding 9, 10, 11%). I even talked to the Freddie Mac CMBS representative to the public who basically told me to quit bothering him, lol. Does anyone have any idea about how to purchase this debt? I'm working with a Turkish friend who has asked me to help his family purchase $200 million of this debt and I have no flipping clue how to access it in the primary or secondary market. Thoughts?
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I wouldn’t recommend attempting to invest in agency b-pieces without any cmbs trading experience. You normally transact through a dealer (IB syndicate desk) and you need to have relationships with Freddie to get access to pre-sales for new issue deals to see if you’d like to lift the b-piece. It’s better just to allocate the capital to agency focused credit funds. However if you feel confident in your credit analysis and ability to identify compelljng relative value, by all means approach the cmbs traders at the dealers and look to transact with them regarding k b-pieces
Thanks for the response. Yeah, I understand the risks--well, I'm not sure I do, but this rich family has people who could analyze the deals--but I'm not sure how to even purchase the debt IF I wanted to. Are you saying I'd have to contact, like, BAML or Goldman Sachs or whoever is syndicating the deal to even gain access to purchase? There's not a secondary market for this?
freddie b-piece is usually bundled and sold as re-remic but it happens very rarely because investors mostly retain Freddie b-pieces to preserve relationship
two ways: 1 issue a SASB transaction with Freddie mac and buy back your own B-piece 2 win an auction, but Freddie Mac still wont sell B-piece to any inexperience investor even if you win the auction
Thanks for this. #1 is pretty smart--wow. I really like that. As an investor and borrower, you've got full control over the performance of the loan.
But with regard to #2, where/when are these auctions? How can I contact someone to be apart of these auctions?
i doubt you'd be pegged as an "inexperienced investor" when you have enough capital to allocate 200mm to one investment - at that level, you're effectively an institution and larger than most hedge funds
Historically Freddie has only sold B pieces to investors with deep experience spanning MF asset management and finance, i.e. people who own assets, lend on assets, and manage assets. That has somewhat gone away as some of the big debt funds have gotten in to the space. Freddie holds auctions 3-4 times a year for the deals that aren't placed via relationship typically you have to bid a couple times before they take you seriously. You need to talk to Freddie to get in on the auctions, but it is an uphill climb for a non institutional investor. The SASB approach is probably the quickest way to get into the space, that was a good idea. Additionally a lot of Freddie B pieces have been trading on the BWIC recently, they do get heavy interest though. I'd also caution not to expect the yields you quoted above in today's environment.
Agreed. Freddie "discourages" investors to trade B-piece (more so the first loss piece). From what I've heard, it is more so a "relationship business". Most B-pieces are sold to known connections (not everyone can get on Freddie's auction list).
That's so weird, given that Freddie Mac is essentially a government agency. You'd think the "public" (that is, qualified investors, even large ones) would have a right to access what is essentially government debt.
.
FMCC common and preferred stock is where its really at. FMCC going to $10 minimum w/ reform & release
BUT, when? Therein lies the question.
Truee. but no doubt this admin and treasury secretary is most favorable shareholders have seen. i figure if it happens inside 10 years (which is crazy and i doubt it takes that long) if it goes to $10 which it should upon a recap/release you get an avg return of 20% compounded. so even on a 10yr time horizon its a fantastic investment.
The idea of b-piece investor is someone who’s very experienced at operating commercial real estate.
So even for CMBS, b-piece buyer are carefully vetted and not always the highest bidder. You cannot just take a bag of money and say I want to buy CMBS/agency CMBS first loss piece
The value of the b-piece is actually in being the controlling class. How to monetize controlling rights is not an easy task
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