Bridge Investment Group is returning with a commercial real estate collateralized loan obligation it originally launched in early December and then pulled as a result of market volatility, according to Kroll Bond Rating Agency.
It doesn't appear that the sponsor has made any concessions; the only changes to the deal are that one loan that had been expected to be acquired after settlement has already been closed, and additional funds committed to six borrowers have already been advanced. As a result, the amount of the deals proceeds that will initially be held in cash has been reduced by a commensurate amount.
So the $600 million transaction, BDS 2019-FL3, will be initially be collateralized by 24 loans with an aggregate balance of $538.8 million, along with $61.2 million of cash that can be used to acquire loans during the initial 18 months of the deal.
BDS 2019-FL3 will be Bridge's first deal with a prefunding period, which introduces an additional element of risk, since the overall credit characteristics of the collateral pool can change as new loans are acquired. However, any loans acquired after closing are subject to reinvestment criteria that include a maximum stabilized LTV and minimum stabilized DSC requirements; pool level concentration limits for loan size, property type, and geographic location; certain restrictions on participation interests and future funding assets, among other things.
Like Bridge’s prior CRE CLOs, the initial 23 loans in the portfolio (nearly 75%, according to Kroll) are heavily concentrated in multifamily properties. There is a single lodging property, which rating agencies generally consider to be a riskier asset class because revenues can be more volatile than other kinds of commercial property. Seaview, a Dolce hotel, is a 296-room resort, with two 18-hole golf courses, in Galloway, New Jersey. The hotel was previously owned by Stockton University, which was using 165 of the 296 rooms for student housing. The sponsor plans to make $15.7 million in capital improvements, including converting the dorm rooms to hotel rooms.
In addition, two of the multifamily properties have characteristics of lodging assets. If those assets are classified as hotel (which Moody’s does), the pool’s lodging exposure will be 16.4%.
Kroll considers the initial collateral to be highly leveraged. It puts the weighted average loan-to-value ratio of the assets held in the trust at 133.7%; that’s the third highest of the 22 CRE CLOs it has rated over the last 12 months. However, the KLTV is lower than that of Bridge’s own two prior CRE CLOs, which had KLTVs of 135% and 135.3%, respectively.
