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Citi's next CMBS includes exposure to Amazon's Silicon Valley expansion

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Citigroup’s offering of commercial mortgage bonds features exposure to a portfolio of high-end office buildings in Brooklyn, N.Y., as well as a California property planned for Amazon’s increased presence in Silicon Valley.

The $736.4 million Citigroup Commercial Mortgage Trust 2018-C6 includes 35 partial loans covering 58 properties weighted toward office-building assets (43.9% of the collateral pool), lodging (19.1%), multifamily (16.2%) and retail (14.4%).

Over 63% of the loans were originated by Citigroup, with the remainder obtained from three other lenders: Rialto Mortgage Finance, Ladder Capital Finance, and Cantor Commercial Real Estate Lending.

A total of 15 tranches of notes will be issued in the transaction, 13 pay principal and interest and two pay only interest. Both Kroll Bond Rating Agency and Fitch Ratings expect to assign triple A ratings to the super senior tranches , which benefit from 30% credit enhancement, and as well as to the senior support tranche, which has just 25.88% credit enhancement.

Kroll notes that the portfolio has a below-average share of loans tied to single-tenant properties (10.1% of the pool balance) and above-average exposure to eight portfolio loans of multiple properties (36.8% of the pool).

Fitch puts the single-tenant exposure higher at 16.7%, based on a tenant occupying more than 75% of a property’s net rentable area. That figure, too, is below the year-to-date average for Fitch-rated conduits of 19.9%.

One of the multi-asset loans is the four-building DUMBO Heights Portfolio of renovated office properties in Brooklyn, representing the largest exposure in the Citi pool. The Citi trust will have a $70 million noncontrolling allocation from a $180 million pari passu loan underwritten by Citi in August to New York real estate investment sponsors RFR and Kushner Cos.

The proceeds were to be used to finance completed renovation efforts of the buildings.

The sponsors have invested a total of $122.3 million in the properties since 2013. Major tenants include Etsy and WeWork.

The DUMBO portfolio is one of two loans considered the equivalent of investment grade by Kroll and Fitch. The other is the Moffett Towers in Sunnyvale, Calif., where Amazon this year signed on to fill out 676,598 square feet of available space through 2030 for affiliate operations. (The move is unrelated to Amazon's "HQ2" headquarters expansion this week that includes New York and northern Virginia.)

Citi was assigned a $25 million share of a $284 million whole loan originated in September secured by three of the seven buildings that will house Amazon's expanded Silicon Valley campus. More than 58% was previously occupied by Hewlett-Packard, according to presale reports; HP agreed to exit under restructured lease in May that made room for Amazon, although as of September Amazon had yet to occupy the new space, according to Fitch.

The Moffett Towers loan proceeds, along with $216.0 million of mezzanine financing, will be used to pay off existing debt of approximately $321.1 million and provide a $131 million cash out for sponsor Jay Paul, a billionaire real estate developer in Silicon Valley.

The Moffett Towers loan was assigned to the trust by Cantor Commercial Real Estate Lending, which had purchased the loan from originators Deutsche Bank, Wells Fargo and Goldman Sachs Mortgage Co.

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