Citigroup and Goldman Sachs are marketing commercial mortgage bonds with unusually heavy exposure to hotels, considered to be one of the riskier property types.
The $694 million Citigroup Commercial Mortgage Trust 2016-GC37 is collateralized by 54 commercial mortgage loans secured by 64 properties, according to rating agency reports.
According to Fitch Ratings, there are six loans, representing 16.2% of the pool, that are secured by hotels properties, plus a mixed-use building with a hotel component that makes up 5.7% of the pool, for a total of 21.9%. This is higher than the average of 14.9% hotel exposure for commercial mortgage bonds rated by Fitch Ratings this year.
The mixed-use property includes a 251 room W Hotel, Austin City Limits at the Moody Theatre (a music and private event venue), 57,000 square feet of office and retail space, and a three-level subterranean parking garage.
Kroll Bond Rating puts the deal’s exposure to hotels and other lodging properties even higher, at 26.3%; this rises to 32% if the mixed-use property is included.
Both Fitch and Kroll view lodging as riskier than other types of assets, because their dependence on nightly room rates makes rental income more volatile than that of say, an office, industrial or multi-family property.
The overall pool of collateral is also highly leveraged relative to deals recently rated by either Fitch or Kroll. Fitch puts the weighted average loan-to-value ratio at 115.3%, well above the average of 108.7% for deals it has rated this year. Kroll puts the LTV at 103.5%, versus an average of 101.8% for the deals it has rated this year.
However, similar to many recent conduit CMBS, the pool’s weighted average LTV, as measured by Kroll, is skewed by a low leverage loan, Sheraton Denver Downtown (the largest loan, at 10.1% of the balance). Excluding this loan, the pool’s weighted average LTV is even higher, at 106.6%.
Both Kroll and Fitch have assigned triple-A ratings to the super-senior classes of notes to be issued by the securitization trust, which benefit from 30% credit enhancement; they also assigned triple-A ratings to the senior class of notes (also referred to as the “junior As”), which benefit from 24.250% credit enhancement.