B2R Finance, the lender backed by the Blackstone Group, is returning to the securitization market after undergoing a shift in strategy and turnover in senior management.
B2R 2016-1 is the sponsor’s third transaction backed by loans to multiple landlords and the first since it pulled back on an expansion into consumer lending.
B2R Finance was formed in 2013 to provide mortgages for investors with portfolios of single family-homes and small multifamily properties. In 2015, it announced a move into lending to consumers over the internet, acquiring the domain name Lending.com.
But in recent months, several executives including chief executive Jason Hogg have left the company as it reorganized to refocus on its original mission of real estate finance, according to Fitch.
The deal will issue four tranches of notes totaling $199.36 million with preliminary ratings from Fitch. The senior, AAA rated tranche benefits from credit enhancement of 33%; the AA- rated tranche gets 28.25% credit enhancement, the A- rated tranche 21.5% and the BBB- 14%. There is also an unrated tranche.
Wells Fargo Securities and Morgan Stanley are the underwriters; Midland Loan Services is the master servicer and special servicer.
The deal is smaller than B2Rs first two deals, the $229.5 million B2R 2015-1 and the $301 million B2R-2015-2. Trust assets primarily consist of 164 mortgage loans secured by 2,528 income-producing properties. Single-family residences make up the largest property type in the pool at 78%, followed by two- to four-unit residences at 11.4%, townhomes at 6.9%, condominiums at 2.4%, and multifamily properties at 1.2%.
The underlying loans also amortize more slowly than B2R’s first two deals; just 7.5% of the initial pool balance will be paid off prior to maturity. By comparison B2R 2015-2 and B2R 2015-1 will pay down 7.7% and 11.5% of their initial pool balance, respectively. Thirty-one loans (24%) pay only interest, and no principal, for their entire terms. The remaining 133 loans (76%) are balloon loans with an average amortization term of 343 months.
The weighted average loan term for this transaction also slightly shorter, at 6.6 years, compared with 6.8 and 7.7 years for B2R 2015-2 and B2R 2015-1, respectively.
The deal’s leverage, while high, is comparable to that of B2R’s first two securitizations. Fitch calculates the debt service coverage ratio at 0.99x and the loan to value ratio at 116.4%. That compares with 1.03x and 116.5% for B2R 2015-2 and 1.02x and 114.9% for B2R-2015.1.
The recent management turnover was not a key driver of Fitch’s ratings. B2R’s board of directors has engaged UFG Holdings, a company controlled by Blackstone Tactical Opportunities Fund, and its subsidiaries Finance of America Holdings and Incenter, to provide management and advisory services to B2R. The board named Steve McClellan, Finance of America Holding’s president, as interim CEO of B2R, and senior management currently consists of UFG Holdings employees.
When Fitch conducted an originator review of the company in May, it observing that many of the firm’s origination practices adhere to the rating agency’s best practices.