Citigroup, Deutsche Bank and JPMorgan are marketing $728 million of commercial mortgage bonds with heavy exposure to offices and retail buildings.
The transaction, Benchmark 2019-B9 Mortgage Trust, is backed by 50 commercial mortgages securing 88 properties with an aggregate principal balance of $883.518 million, according to rating agency presale reports.
Office buildings represent the largest exposure, by property type, at roughly 40.4% of the total; Kroll Bond Rating Agency puts the figure at 40.3%, while Moody’s Investors Service measures it at just 37.8%. This includes the two largest loans in the collateral pool, 3 Park Avenue, a $88 million loan (representing 10% of the pooled trust balance) secured by a class-B office and retail condominium in the Murray Hill neighborhood of Manhattan; and Country Club Plaza, a $47 million loan (5.3%) secured by a class-A suburban office in Paramus, N.J.
Kroll cites the deal’s concentrated exposure to a single property types as a credit concern, noting that it higher than the 33.2% average for the 12 CMBS conduits it has rated over the six months, which ranged from 21.9% to 45.2%.
S&P calls attention to the fact that 11 of the loans, including the second largest, finance suburban office properties, which have experienced higher default and loss rates, relative to office properties in central business districts. Moreover, three of the office loans (4.1%) are secured by single tenants. One of these three, 10 Brookline Place (3.6%), is located in a suburban market.
Both rating agencies are also concerned about the transaction’s high leverage. S&P puts the weighted average loan-to-value ratio, based on its own valuation of the properties and their cash flows, at 96.2%. The presale report states that this was one of the primary factors in the rating agency’s derivation of credit enhancement levels for the transaction. While the debt service coverage ratio of 1.51x is “moderate,” S&P notes that any increase interest rates could affect the loans' ability to refinance at maturity.
Kroll puts the weighted average LTV at 102.4%, which is the highest among the 12 conduits it has rated over the past six months, which ranged from 86.1% to 99.9%. Additionally, the pool’s exposure to loans with LTVs, as measured by the rating agency, in excess of 100% (35 loans, 69.3%), is the highest in the comparable set, which had an average of 49.6% and ranged from 31.5% to 60.8%.
Among other ratings considerations, S&P cited the fact that 36 properties (20.3%) across 11 loans are leased to a single tenant. And two of the top 10 loans (7.6%) are occupied by a single tenant. The largest of these is Staples Strategic Industrial (4%), an eight-industrial-property portfolio, 100% guaranteed by either Staples Inc. USR Parent Inc., and entities related to the Staples' brand delivery and retail operations, respectively, through September 2038. The next largest is 10 Brookline Place (3.6%), a Boston office property, leased entirely to the Dana-Farber Cancer Institute through December 2030; followed by PSM Building (3.1%), an industrial property leased entirely to Power Systems MFG through June 2029.
Kroll takes some comfort that a single loan, a portion of a larger loan on a super regional mall in Aventura, Fla., (1.7%) has credit characteristics consistent with an AA- rated obligation when analyzed on a standalone basis. (A portion of the related whole loan ($750.0 million) was securitized in Aventura Mall Trust 2018-AVM, a single-asset, single-borrower CMBS.
Citigroup contributed 49.9% of the loans, followed by Deutsche Bank with 28.9% and JPMorgan with 21.2%, according to Kroll.
Both S&P and Kroll expect to assign an AAA rating to the super senior tranches of securities to be issued in the deal, which benefit from 30% credit enhancement. Kroll alone is assigning an AAA to the senior support tranche, which benefits from 22.625% credit support.
