The new-construction mortgage for the high-end 10 Hudson Yards Class A building on New York’s West side continues to be parceled out to commercial mortgage securitizations.
A new CMBS deal being marketed by JPMorgan and German American Capital Corp. was assigned notes supported by an $80 million slice of a $900 million whole mortgage for the 51-story building, part of the largest-ever private real estate development in the U.S.
The loan is one of 36 fixed-rate loans secured by 42 properties pooled by JPMDB Commercial Mortgage Securities Trust 2016-4 in a $1.12 billion transaction. The mortgage loan issued earlier this year for 10 Hudson Yards, a 1.8 million square-foot office space, has been divvied up three prior commercial mortgage-backed securities deals by Goldman Sachs, Morgan Stanley, Deutsche Bank and Citigroup (Hudson Yards 2016-10HY Mortgage Trust, GSMS 2016-GS3 and CD 2016-CD1).
The new JPMDC deal includes five classes of senior notes totaling $879.8 million. They are each graded ‘AAA’ by Moody’s Investors Service, Kroll Bond Rating Agency and Fitch Ratings in preliminary structured finance ratings. Four of the series A notes are prioritized as super senior with 30% credit support; the junior Class A has 21.75% CE.
The transaction is top-heavy in office properties, with 17 loans representing 61.9% of the pool balance, and six hotels comprising 11.8% of the balance – a concern not only as a “very high share comprising a single property type,” noted Moody's, but the fact that office and hotel properties are often the most volatile assets in a securitization due to variable operating performance.
Only 15.6% of the pool balance are in less volatile asset classes such as regional malls (7.4%), multifamily (6%), industrial (1.6%) and manufactured housing (0.6%), according to Moody’s.
Seven loans have full-term interest-only structures, which at 37.4% of the collateral pool is higher than the average of other conduit/fusion transactions in 2016 (36.1%), according to Moody’s. Fifteen have initial interest-only periods that step up to fixed rates. Another 13 loans have balloon payments.
Moody’s said the transaction’s credit strengths involve the inclusion of three investment-grade assessments to three loans totaling 16.3% of the pool balance: those include the $23.5 million loan backed by a 794,521-square foot Westfield San Francisco Centre regional mall; the $80 million 9 West 57th loan secured by the fee interest in the 50-story Class A office building in New York, as well as the 10 Hudson Yards loan.
Having those IG loans improved the weighted average loan-to-value ratio from 117.4% to 108.6%, an average leverage “of concern” to Moody’s, although it is lower than comparable CMBS pools in 2016 where the average Moody’s LTV is 114.4%.
Fitch also found the pool fitting below its proprietary LTV metrics showing a 102.4% LTV compared to a 2016 industry average of 105.8%.
The loans 10 Hydson Yards and the 9 West 57th office building – where tenants include Kohlberg, Kravis, Roberts & Co. and Chanel – are the two largest in the collateral pool.
10 Hudson Yards is part of the massive Hudson Yards development in Manhattan – and the largest-ever private real estate development in the U.S. The entire Hudson Yards development is bringing an additional 18 million square feet of office rental space to the market – and up to 28 million of available space through further development.
The 10 Hudson Yards building's loan has 11 senior notes and two junior notes being split among various other conduit deals.
The deal has nearly 29% of its loans secured by real estate in top-tier MSAs New York, Los Angeles, San Francisco and Boston, and also low single-tenant concentration that is tied to only two properties in the pool balance.
Nine loans representing 33.6% of the pool balance are structured with hard lockboxes, and nearly 67% of the pool have loans in which the borrower must fund escrows for various requirements, such as capital expenditures (66.8% of the pool balance); tenant improvements and leasing commissions (35% of the office/retail/industrial/mixed use component balance) and real estate taxes (71.9%).
The issuer trust project annual cash flow in the pool of $110.1 million. Fitch shaved 7.07% off that total in its projected cash flow variance of only $102.3 million, while Moody's varied by 7.8% below the issuer level.
Leverage issues are compounded by seven loans in the pool tied to additional $2.9 billion in pari passu loans and subordinate external debt totaling nearly $990 million.
Wells Fargo and Midland Loan Services are the master servicer and special servicer, respectively.