After a short pause for the ABS East conference in Miami last week, the commercial mortgage bond pipeline is back on, churning out a $1.3 billion transaction sponsored by JP Morgan.
The deal, JPMBB 2014-C24, will issue securities that are backed by 54 fixed rate loans and secured by 64 properties. Kroll Bond Rating Agency and Fitch Ratings have assigned preliminary ratings to 18 classes of notes.
The transaction is more levered than the last 17 conduit CMBS pools rated by KBRA. The ratings agency said that at 101% the weighted average loan-to-value ratio (LTV) is high and would be even higher, 103.2%, without the pool’s largest loan, Grapevine Mills, which has a relatively low LTV of 76.0%.
Fitch also noted that the overall pool's weighted average LTV is worse than the first-half 2014 and full-year 2013 averages.
Five loans representing 15.5% of the pool have existing additional debt (13.0%) or allow future additional debt to be incurred (2.5%). However the loans that permit future additional debt require the satisfaction of certain conditions that generally include combined debt service covenants and LTV requirements.
There are nine loans (11.7%) that are secured in whole or in part by single tenant buildings. This is above the average single tenant exposure of the last 17 conduits rated by KBRA, which ranged from 0.0% to 19.8%. Properties with multiple tenants that rely on a diversified tenant roster for their income stream can present less credit risk than properties that derive all of their cash flow from a single lessee.
The largest single tenant exposure is by Hutch Tower Two (5th largest, 6.3%), a 278,133 sf, class-A medical office building located in the Bronx borough of New York City. The property is 100% leased to Montefiore Medical Center, with a long term lease that expires in September 2030, approximately six years after the loan’s maturity in October 2024.
Riskier pools have become more of the norm in conduit CMBS. Deals in recent months have been highly levered and the concern is that as new entrants come in and compete for loans, standards will continue to slip in conduit CMBS.