A portfolio of loans on predominantly office and retail properties will secure the pending $1.0 billion conduit securitization from the BANK5 2023-5YR1 transaction, a deal that has a collateral pool of just 24 loans, one of the lowest counts that Kroll Bond Rating Agency has rated since 2012.
Entities of Wells Fargo, including Wells Fargo Bank and Wells Fargo Commercial Mortgage Securities are acting as retaining sponsor and the loan depositor, respectively, according to a pre-sale report from Kroll Bond Rating Agency. Also, Wells Fargo Bank is the master servicer on the deal, which will comprise certificates that repay principal and interest and interest-only certificates, according to the rating agency.
Twenty-four loans that finance 134 properties, according to KBRA, and they are distributed almost evenly among office (32.4%), retail (28.9%), industrial (20.9%) and lodging (9.7%). Properties describe as "other" account for 8.1%.
Fitch Ratings, on the other hand, expressed some concerns about the pool's higher pool concentration. The top 10 loans make up 68.7% of the pool, which is higher than the 60.2% in 2023 levels and 55.2% in the 2022 pools.
As for the all-important property locations, a majority of the properties 57%, are located in 1A, 1B and 2A market tiers, with the 2A market tier accounting for the highest concentration, at 33.6%, KBRA said. As for the other top market tiers, the 1A tier makes up 12.5% of the pool and the 1B market tier accounts for 9.9%, the rating agency said.
A number of pool characteristics bolster confidence in the timely repayment of notes. For one, the pool has an overall weighted average (WA) in trust loan-to-value ratio of 89.1% from KBRA. The rating agency says this is well below the average of 93.3% for the 16 CMBS conduit deals that it has rated over the past 12 months. Beyond that, just 30.1% of the loans in the pool had KLTVs in excess of 100.0%—another metric that was below the comparison set average of 42.7%.
Another positive is that the pool has limited additional indebtedness. One loan, the Oak Street NLP Fund Portfolio, the second-largest at 9.5%, has existing subordinate secured indebtedness. Like the previous metrics, the level of additional debt is one of the lowest among the comparison set, ranging from 0.0% to 33.3%.
Fitch Ratings says it plans to assign 'AAA' to the A-1 through A-S notes. It expects to assign ratings of 'AA-' on the class B notes through 'B-' on the X-G notes.
Ratings on the notes will range from 'AAA' on the A-1 through A-S notes; 'AA-' and 'A-' on the B and C notes; and 'BBB' through 'B-' on the D through G notes.
Among the interest-only notes, ratings range from 'AAA' on the X-A and X-B notes, then 'BBB-' to 'B-' on the X-D through X-G notes, the rating agency said.
