Ready Capital Corporation, a mortgage real estate investment trust (REIT), is preparing a $754.2 million securitization of 25 short-term, floating-rate commercial mortgage assets secured by 75 properties.
The collateral pool is heavily weighted toward multifamily assets, of which there are 71, including one student housing property called The Orchard, according to DBRS | Morningstar. Multifamily housing accounts for 95.7% of the pool’s balance, as of the mortgage asset cutoff date.
Industrial properties and self-storage properties account for the rest of the properties, accounting for 1.3% and 3.0% of the pool, respectively.
The transaction, known as Ready Capital Mortgage Financing, 2022-FL9, lists J.P. Morgan as the structuring agent, with a team of placement agents comprised of J.P. Morgan, plus Credit Suisse Securities, Deutsche Bank Securities and Goldman Sachs, according to DBRS.
KeyBank National is advancing agent on the transaction, which issues notes through a senior-subordinate structure. Subordination on the notes range from 46% on the class A notes to 8.8% on the class G tranche.
DBRS expects to assign ratings ranging from ‘AAA’ on the $407 million and $48 million, class A and class A-S notes, respectively, to ‘A’ on the class C notes. As for the more subordinate notes, ratings will range from ‘BBB’ on the $54.6 million, class D notes to ‘B’ on the $29.2 million, class G notes.
DBRS recounts a number of credit positives to the deal. For one, Ready Capital has strong origination practices and has the backing of a corporate parent, Waterfall Asset Management, which manages Ready Capital externally. Also, another related entity of Ready Capital, is the depositor, and expects to retain the notes in classes F, G, and H, which collectively represent the most subordinate 18.7% of the transaction by principal balance, the rating agency said.
The deal does have a number of credit challenges, however, including elevated levels of leverage. Six of the loans in the pool, representing 23.7% of the trust balance, have DBRS Morningstar loan-to-value ratios of greater than 85.0%, a significantly higher leverage. Three of the six loans are among the 10 largest loans in the pool.
Further, the deal’s loan components feature a number of potential challenges, including that they lack amortization and their terms create potential interest rate risk. All 25 of the loans have floating-rate loans indexed to either the one-month LIBOR, or the Secured Overnight Financing Rate. Also, all of the loans are interest-only during their original terms of 18 to 48 months.
