Cherrywood Commercial Lending, a specialty finance company that caters to owners of smaller commercial properties, is preparing a $115 million securitization, according to DBRS. 

The deal, Cherrywood SB Commercial Mortgage Loan Trust 2016-1, is backed by 151 loans secured by 205 properties. According to DBRS, 136 of the 151 loans are secured by individual properties, and 15 are cross-collateralized.

Furthermore, one of the crossed loans (2.7% of the pool) is backed by the interest in 37 single-family rental homes and one medical office building.

The loans in the collateral pool have an average balance of $744,407 and are secured by below-average urban properties in various stages of maintenance and repair by operators that DBRS describes as being “generally less sophisticated.”

The loans have interest rates ranging from 5.75% to 9.25%, according to DBRS.

Of 34 loans that DBRS sampled in the portfolio, 20 (or 57.9%) had derogatory credit history, bankruptcies or “negative financial concerns,” the report stated. The aged properties (including a Class C Columbus, Ohio, apartment complex with units built between 1962 and 1975) are in various stages of maintenance, with 10 of the sampled loans assessed as “below average” or “poor” property quality.

For instance, an apartment property in Odessa, Tex., was rehabilitated with a $1.5 million “near-gut” renovation in 2014; but a Dayton, Ohio, multifamily property inspected by DBRS displaced poor maintenance and appearance – such as scattered trash and a parking lot with an abandoned lawn mower and couch.

DBRS has applied a negative cash flow variance of 15.7% from Cherrywood’s projected net cash flow estimated.

The trust will issue nine tranches of notes, including two tranches of senior, class A notes (one fixed rate, one floating rate) sized at $39.3 million apiece that benefit from 30% subordination. They have preliminary rating of ‘AAA.’ 

DBRS is also rating four tranches of class M notes totaling nearly $20 million, along with two tranches of class B notes adding up to $7.5 million. Those B-1 and B-2 notes, as well as an unrated stack of class B-3 notes, are to be privately placed.

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