Citigroup has launched the first offering of commercial mortgage bonds in a week on Friday.
The $1.025 billion Commercial Mortgage Trust 2017-P7 is one of only two private-label deals currently being marketed in a pause that follows two weeks of strong issuance.
Among the deal’s most notable features is the strategy for satisfying skin-in-the-game rules that took effect late last year. Citigroup (or a majority-owned affiliate) is expected to purchase and retain on an “eligible vertical interest” of 2.2%; in addition, an third-party, Rialto Capital Advisors is expected to hold at least 7.7% (through affiliate RREF III-D AIV RR.)
There have been only a few deals to employ what is known the “L” strategy. Moreover, the combined holdings of 9.9% are well in excess of the 5% required risk retention.
The pool’s leverage statistics are slightly worse than those of other recent fixed-rate multi-borrower transactions that Fitch Ratings has reviewed. The pool’s debt service coverage ratio, as measured by Fitch, is 1.17x, is slightly worse than the YTD 2017 average of 1.25x and the 2016 average of 1.21x.
The pool’s loan-to-value ratio, as measured by Fitch, is 106.8%, higher than the 2016 and 2017 YTD averages of 104.0% and 105.2%, respectively.
Excluding a single loan with investment grade like characteristics, the leverage is even worse, with a DSCR of 1.16x and an LTV of 108.2%. That loan, Urban Union – Amazon (2.3% of the pool), received an investment-grade credit opinion of AA on a stand-alone basis. It is secured by a class A single-tenant office property located in the South Lake Union submarket of Seattle with Amazon on a long-term lease expiring in 2032.
The pool is also fairly concentrated; loans secured by office properties and mixed-use properties that are predominantly office make up a combined 61.6% of the pool.
Hotel properties represent only 6.5% of the pool which is below the YTD 2017 and 2016 averages of 12.2% and 16.0%, respectively.
Amortization is also low. Based on the scheduled balance at maturity, the pool will pay down by only 7.7%. While that is above the 2017 YTD average of 7.0%, it’s significantly below the 2016 average of 10.4%. Eighteen loans (48.2%) are full-term interest only and 15 loans (36.2%) are partial interest only. Fitch-rated transactions at 2017 YTD had an average full-term interest-only percentage of 49.9% and a partial- interest- only percentage of 25.8%.
