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NEW YORK CITY-Gramercy Capital Corp. closed a $1.1 billion commercial real estate collateralized debt obligation, its third commercial real estate CDO transaction as GlobeSt.com previously reported. Gramercy used the majority of proceeds from the issuance of CDO 3 to retire outstanding borrowings under existing secured repurchase agreements, to acquire a substantial portion of Gramercy's existing fixed-rate commercial real estate loans currently financed in Gramercy's two existing CDOs and to finance a $752.1 million portfolio of AAA-rated CMBS.

CDO 3 will create almost $350 million of immediate financing capacity in its existing CDOs and secured repurchase agreements and will further reduce Gramercy's weighted average cost of debt capital. CDO 3 issued $1 million of bonds rated AAA through BBB-, and $54.5 million of interests that are not rated investment-grade.

Hugh F. Hall, COO of Gramercy Capital Corp., comments, "this CRE CDO issuance, which was completed in the face of challenging conditions in the capital markets, is the clearest affirmation yet of Gramercy's position as a top-tier commercial real estate finance company."

The Issuer and Co-Issuer sold all of the bonds rated AAA through BBB-. As it did with CDO 1 and CDO 2, Gramercy retained the non-investment grade interests in CDO 3. The weighted-average spread was 44.7 basis points, excluding transaction costs. Bonds issued by CDO 3 will pay interest on a quarterly basis in October, January, April and July.

CDO 3 matures in 2017, and provides for a five-year reinvestment period during which Gramercy can utilize the proceeds of loan repayments to finance new investments. Bonds issued by the Trust have expected average lives of 8.44 to 9.02 years.

The aggregate outstanding principal balance of assets contributed by Gramercy to CDO 3 was approximately $1.1 billion, consisting of $347.9 million of commercial real estate loans and $752.1 million of AAA-rated CMBS.

"The deal was well received and we were able to sell our senior securities at spreads lower than the spreads on comparable CMBS, believed to be a first in the CRE CDO market," Hall says. "This non mark-to-market financing further bolsters our considerable corporate liquidity, lowers our borrowing costs, and match funds a large portfolio of AAA-rated CMBS selected by our Real Estate Securities Group and most of our fixed-rate loans."He continues, "we believe our ability to execute this transaction demonstrates the strength of our platform which will result in competitive advantages in the current market environment."

GKK Manager LLC, which is the external advisor to Gramercy Capital Corp, will serve as Collateral Manager for the CDO. GKK Manager LLC is a majority-owned subsidiary of SL Green Realty Corp.

Gramercy will treat the transaction as a financing and therefore consolidate on its balance sheet and statement of operations all of the assets, liabilities, income and expenses of the CDO 3 issuer. All contributed collateral will be shown as assets, and the investment grade rated securities issued to third party investors will be shown as direct liabilities.

The joint book-runners and co-lead managers were Wachovia Capital Markets LLC and Goldman Sachs & Co. Wachovia also served as structuring agent. Co-managers were Morgan Stanley & Co., Deutsche Bank Securities Inc. and Citicorp Securities Inc.

Instant Insights /

Gramercy Closes $1.1B Commercial Real Estate CDO

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