Credit Suisse's latest securitization of commercial mortgage loans is heavily exposed to lower quality properties from secondary and tertiary markets, as well as hotel properties; both of which increase the risk in the collateral pool.
According to Kroll Bond Rating Agency, 48% of the properties pooled under CSAIL 2015-C4 are located in secondary commercial real estate markets and 27.3% are located in tertiary markets.
The pool’s primary market exposure of 24.7% is significantly below the 49.1% average exposure of the CMBS conduits rated by Kroll over the last six months. Primary markets are defined as areas that have diverse economies and favorable demographics and can better withstand fluctuations and downturns in the national economy relative to secondary and tertiary real estate markets.
CSAIL 2015-C4 also has heavy exposure to hotels. Kroll said that 21% of the pool is comprised of hotel assets, which is higher than the 14.8% average of the CMBS conduits rated by Kroll over the last six months. Lodging assets can have more volatile cash flows than other property types due to their dependence on nightly room rates.
The largest loan in the pool is sized at $112.5 million and is secured by the Fairmont Orchid, a full service hotel located on the Big Island of Hawaii. A $45 million loan secured by the Arizona Grand Resort & Spa, a hotel located in Phoenix, Arizona, represents the second largest loan in the pool.
In total the transaction will offer $939.6 million of bonds backed by a pool of 87 loans that are secured by 101 properties. The loans have a weighted average (WA) loan-to-value (LTV), based on the appraised value of the properties, of 65.6%; LTV based on Kroll's valuation is 105.6%. The loans have a WA life of 9.2 years and pay a WA coupon of 4.61%. More than two-thirds loans pay only interest for at tleast part of the term: 42 loans (51.4%) pay interest only for a partial term and five loans (16.2%) pay interest only for the entire term. The remaining 40 loans (32.4%) are amortizing balloon loans that require principal payments throughout their respective terms.
Kroll assigned preliminary 'AAA' ratings to both the super senior notes that are structured with 30% credit enhancement and the junior/senior tranche which is structured with 24% credit enhancement.