Benefit Street Partners Realty Trust is issuing its second commercial real estate CLO this year in a $440.7 million transaction involving recently acquired or refinanced properties that are in the midst of construction or rehabilitation.

The notes being sold are backed by 20 commercial mortgage loans and participations secured by 32 properties, a majority of which (54%) are multifamily apartment properties. The loans were originated or acquired by subsidiaries of the publicly registered, nontraded REIT division of the $20-billion-asset Benefit Street Partners asset management firm.

The $238 million senior tranche of notes to be issued are supported with 45% subordination and expected triple-A ratings from Kroll Bond Rating Agency and Moody's Investors Service.

BSP has frequently assigned collateral to commercial mortgage-backed conduit deals totaling $3.4 billion since 2014, but for the second time is utilizing a CRE-CLO format to securitize loans for which cash flow is limited or unstable in covering immediate debt service needs. According to the presale report by KBRA, the properties are generally "transitional" or "nonstabilized" properties that are in the midst of upgrades or new business plans to increase the tenancy of lease space.

Two of the multifamily properties — including a St. John's Place New York-based Class A midrise in Brooklyn — are "ground up" construction projects that were financed while still awaiting completion. Benefit Partners has a $63 million participation in the St. John's project, representing 14.3% of the pool.

Loan proceeds were used either for property acquisition or refinancing existing debt. The loans are short-term with a remaining original term of 1.8 years. Like some recent highly leveraged CRE-CLO issues, the BSPRT transaction is launched high debt load with an estimated in-trust loan-to-value ratio of 12.81%.

The hybrid CRE-CLO format is an increasingly popular choice among lenders and real estate investment trusts to fund debts on newly acquired or refinanced assets. The loans assigned to the transaction are short-term loans, with remaining terms of just 1.8 years, and back notes that have a payment waterfall structure similar to collateralized loan or debt obligations. Investors receive servicer advances in lieu of receivables cash flow from properties being rehabbed or repurposed.

The transaction includes a two-year revolver period allowing for the additional pooled assets.

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