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Updates from Basel 3.1 that kicked in this year, have now made it impossible to get STS treatment on a commercial real estate (CRE) SRT transaction.

“Alvarez & Marsal is active in commercial real estate SRT and in that space there appears to be somewhat of an oversight in the regulation,” said Robert Bradbury, head of structured credit at Alvarez & Marsal.

“Despite the fact that the regs say, explicitly, commercial real estate is eligible for STS, it's actually not technically possible at all.”

Securitisations that qualify for the simple transparent and simplified (STS) label receive better capital treatment if they meet a certain set of criteria. In the EU (unlike the UK) both true sale and synthetic transactions can achieve STS.

Among many criteria, according to Article 243 of the European Capital Requirements Regulation (CRR), for a transaction to qualify as STS, underlying exposures under the standardised approach must have a risk weight equal to or smaller than “50% on an individual exposure basis where the exposure is a loan secured by a commercial mortgage.”