Commercial mortgage securitization may be off to a slow start, but one of the first conduit deals of the year has one of the main hallmarks of 2015: credit barbelling.
WFCM Commercial Mortgage Securities Trust 2016-C32 is backed by 112 fixed-rate loans secured by 152 commercial properties with an aggregate outstanding trust balance of $959.9 million. The biggest exposure, by property type, is to office (24.8% of the pool balance), anchored retail (20.7%), and multifamily (19.1%).
Among the deal’s strengths, according to Moody’s, is the strong assortment of property market locations and the inclusion of low-leverage cooperative loans. Offsetting these strengths are the pool’s average loan leverage, amortization profile, and concentration of properties with a single tenant.
The loan pool’s weighted average loan-to-value ratio, as measured by Moody’s, is 108.6%. That is considerably lower than the average MLTV ratio for 2015-rated transactions at 115.8%. However excluding the cooperative loans, which are unrated, but have leverage consistent with investment-grade quality, the average LTV ratio is higher than the 2015 average of 119.6%.
The high quality coop loans help offset some very high leverage elsewhere in the pool The top 10 loans have a weighted average MLTV ratio of 118.8%. Of these, one has an MLTV ratio of 136.3% and one loan has an MLTV ratio above 140%.
Not only are loans in the pool highly leveraged, they also have little amortization. Four loans (15.6% of the pool balance) pay only interest, and no principal, for their entire terms; another 38 loans (47.9%) pay only interest for part of their terms. Only 70 loans (36.6%) are fully amortizing.
The average loan size for the pool is low, at $8.6 million. That’s among the five smallest pool average loan sizes for deals rated since the financial crisis. Excluding the top 10 loans, the average loan size is even smaller: $5.5 million.
The pool contains two loans, Marriott Melville Long Island (6.1% of the pool) and Chicago Industrial Portfolio (4.6% of the pool), backed by properties that are also encumbered by $10.0 million of mezzanine debt and $4.5 million of mezzanine debt, respectively. There are also lines of credit, totaling $11.7 million, associated with 22 of the cooperative loans in the pool, which we treat as subordinate debt in the course of our analysis (8.9% of the pool). Moody’s LTV ratio for the pool, including all of the aforementioned financing, is 110.5%.
So far this year, only one conduit, the $703 million CFCRE 2016-C3, has priced, according to Deutsche Bank. In a report published Monday, the bank said that the triple-A tranches of this deal pay a spread of 162 points over the benchmark. That deal had higher exposure to office properties (28.7% of the pool balance), which Moody’s considers to be a volatile asset class. The second biggest exposure is to retail (23%) and industrial (13.2%).
CFCRE 2016-C3 also had a greater portion of loans that paid only interest and no principal for either part (43.8%) or all (40.6%) of their term.