Real Estate Securitization

The sale of receivables as such is relatively old. However, ‘Securitization’ or ‘Asset-Securitization’ is a fairly young financial markets innovation. The concept of Asset-Securitization has its origins in the USA, where Asset-Backed Securities (ABS) has evolved from Mortgage-Backed Securities (MBS). MBS were developed in the 1980’s to save the thrifts in the savings & loans crisis. Today ABS is the major category and MBS are a subset of that. Since the start of ABS in 1985 the Asset-Securitization market has risen enormously. In Europe the ABS market has risen from €3 billion in 1992 to over €146.6 billion in 2010. [3] The current development can be described as: „What started as true sales of large pools of homogenous assets has spread to allow the technique to be used for more diverse, unique asset types”.
As a general concept Real Estate Securitization could function as a means for disintermediation of real estate lenders and therefore as an innovative financing alte
ative for the property industry. The concept of real estate or property securitization, as it may also be called, has positioned itself as an alte
ative financing product to the classic real estate financing products. It could function as a substitute for traditional mortgage financing as well as a complementary product to enhance traditional financing.
This way of financing real estate is very interesting for the property industry, because capital market investors often value cash flows differently than mortgage banks. Moreover they are more willing and also more able to take on specific risks that mortgage banks cannot take on.
This paper will look at how securitization and especially Real Estate Securitization works. It will delineate for whom this will be interesting. At the end of the paper the benefits and limits of Real Estate Securitization will be shown.
The following tasks are to be solved in this paper:
• to explain what the Real Estate Securitization is
• to show the benefits...

The sale of receivables as such is relatively old. However, ‘Securitization’ or ‘Asset-Securitization’ is a fairly young financial markets innovation. The concept of Asset-Securitization has its origins in the USA, where Asset-Backed Securities (ABS) has evolved from Mortgage-Backed Securities (MBS). MBS were developed in the 1980’s to save the thrifts in the savings & loans crisis. Today ABS is the major category and MBS are a subset of that. Since the start of ABS in 1985 the Asset-Securitization market has risen enormously. In Europe the ABS market has risen from €3 billion in 1992 to over €146.6 billion in 2010. [3] The current development can be described as: „What started as true sales of large pools of homogenous assets has spread to allow the technique to be used for more diverse, unique asset types”.
As a general concept Real Estate Securitization could function as a means for disintermediation of real estate lenders and therefore as an innovative financing alte
ative for the property industry. The concept of real estate or property securitization, as it may also be called, has positioned itself as an alte
ative financing product to the classic real estate financing products. It could function as a substitute for traditional mortgage financing as well as a complementary product to enhance traditional financing.
This way of financing real estate is very interesting for the property industry, because capital market investors often value cash flows differently than mortgage banks. Moreover they are more willing and also more able to take on specific risks that mortgage banks cannot take on.
This paper will look at how securitization and especially Real Estate Securitization works. It will delineate for whom this will be interesting. At the end of the paper the benefits and limits of Real Estate Securitization will be shown.
The following tasks are to be solved in this paper:
• to explain what the Real Estate Securitization is
• to show the benefits...

I want to end my paper by repeating the main things that was mentioned above.
Securitization is the process by which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors. It consists of 4 elements:
1. Assets generating the cash flow that are to be securitized
2. Investors
3. Special purpose vehicle
4. The securitization product
The transaction that combines these elements is securitization itself.
Real Estate Securitization describes the financing of property through the securitization of real estate cash flows and property values without the bank as a lending intermediary.
Real Estate Securitization can be categorized by type of Asset, for example: Real estate rental cash flows and Future real estate rental cash flows, or by type of Real Estate Originator, for example: Corporates, that have defined real estate as a non-core business and that try to disinvest their real estate holdings in order to raise shareholder value and corporates, that have defined real estate as a core business and that are looking to finance or refinance their existing holdings.
There are a lot of benefits for the originators and for investors which was mentioned above in the chapter “Benefits and Limits of Real Estate Securitization”
Also there are some limits for the Real Estate Securitization which can be found on the cost side and on the legal and structuring side. There are taxes and legal challenges that can raise the cost of the transaction and some other limits for the investor and the originator.
Real Estate Securitization might be an alte
ative source of financing for the property industry. This financing tool is not applicable for all real estate, but for certain defined real estate assets. It is also not a product for every real estate holder, but only for a certain group of real estate originators. However, there is a wide array of motives why a securitization...