While the asset-backed securities market and the credit markets overall are moving away from Libor products, the ACREC 2021-FL1 is coming to market with $875.6 million in commercial mortgage-backed securities (CMBS), secured by loans hedged with Libor rate caps.
ACREC REIT, a new commercial real estate CLO issuer, is the deal’s sponsor, issuer and collateral manager. This is also ACREC’s first securitization, according to DBRS Morningstar. ACREC will also retain the most subordinate portion of the capital structure totaling 17.6%, which includes the subordinate notes, F and G.
Twenty-three floating-rate mortgage loans on 23 multifamily properties make up the deal’s initial collateral, spread across 13 states. A managed vehicle, ACREC 2021-FL1 includes an 18-month reinvestment period.
The collateral manager can direct the reinvestment of principal proceeds to acquire certain reinvestment collateral interests, such as funded companion participations, that meet eligibility criteria. The reinvestment collateral interests targeted for purchase must meet, among other things, loan size limits, minimum debt service coverage ratios (DSCR), and loan-to-value (LTV) ratios.
ACREC must also remain default free and pass specific note protection tests, said DBRS.
As for the deal’s Libor link, the rate caps range between 0.5% and 3.5%, which will insulate the notes from rate hikes during the term. All of the underlying loans in the collateral are floating rate, and are interest only during the initial term. The initial term ranges from 24 to 49 months.
The COVID-19 pandemic has directly affected certain diligence undertakings on the collateral. DBRS noted that it was able to perform site inspections on just two loans in the pool, specifically The Duncan and The Otis, known as prospectuses #5 and #18, respectively.
In terms of borrower concentration, the pool has seven borrower groups that represent 69.1% of the initial pool balance across 14 loans. The sponsors for five loans in particular are repeat borrowers and experienced multifamily investors in their own markets and significant holdings. City Club Apartments in Detroit and Cincinnati, which are prospectus ID numbers 1 and 2, respectively, together represent a concentration of 17.4% of the pool, and the largest sponsor concentration. Tessa at Katy; Crawford at Grand Morton; and Verso comprise the second largest concentration, 16%.
DBRS expects to assign ratings ranging from ‘AAA’ on the class A notes to ‘B’ on the class G notes.
