Another conduit pool gets a slice of $1B Grand Canal Shoppes loan

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A nearly $1 billion mortgage loan for a luxury Las Vegas retail center is again the centerpiece of a major-bank CMBS transaction.

According to Kroll Bond Rating Agency, a new conduit securitization by UBS includes a $50.4 million share of a $975 million refinance loan secured earlier this year by the owners of Grand Canal Shoppes, a Venice-themed shopping, dining and entertainment complex occupying three floors of two casino resorts.

The 759,891-square-foot Grand Canal Shoppes attraction has previously served as collateral in seven prior CMBS transactions this year, including a controlling commercial MBS offering sponsored by a joint venture of Brookfield Property Partners and Nuveen Real Estate via Morgan Stanley in July.

The latest Grand Canal participation, at 6.2% of the pool, is the largest among 70 loans securing 97 properties being pooled into the $807.3 million UBS 2019-C17 transaction.

The UBS transaction features 20 classes of notes, including 13 receiving principal and interest payments, five interest-only tranches, one receiving excess interest and a residual class.

Kroll has assigned preliminary triple-A ratings to six of the senior P&I Class A tranches.

The loans in the pool are spread among properties in 58 metropolitan statistical areas — with the largest in the Southern California Inland Empire region (6.3%) and the Las Vegas MSA (6.2%). The pool has a collective weighted average loan-to-value ratio of 103.1%, including a higher-average percentage (73%) with individual LTVs estimated over 100% by Kroll.

The Grand Canal property, located in both the Venetian Hotel and Casino and the Palazzo Resort and Casino, is one of two given stand-alone, investment-grade treatment by Kroll in an evaluation of property quality. Also included is an “ultra-luxury” multifamily high-rise development in Los Angeles that was opened in January 2017 by global luxury real estate development firm Crescent Heights.

The trust holds a $25 million portion of Crescent’s $350 million first-mortgage loan for the property at 10000 Santa Monica Boulevard, adjacent to Beverly Hills. The refi loan for the 41-story tower, the tallest rental property in Southern California, was recently funded by Natixis. The apartment-complex loan represents the fifth-largest loan in the UBS trust’s pool.

Also of note in the deal are 13 loans (16.8% of the pool) with existing subordinate debt or allowances for borrowers to take on additional unsecured debt, according to Kroll. The pool also has a high exposure to cash-flow volatile lodging properties (21.8%) and a single-tenant properties, which can present greater risk of income-stream disruption due to the dependence on a single lessee.

But mitigating those concerns is the large share (25.3%) of portfolio loans, which historically present lower levels of default probability. Within multi-property portfolios, borrowers are incentivized to supplement lagging revenues in poorly operating properties with income from due to higher-performing properties within the same grouping.

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