DC Commercial Mortgage Trust is planning to issue $990 million in commercial mortgage-backed securities (CMBS), a recapitalization deal secured by data center properties in northern Virginia.
The single-asset, single-borrower deal, where a fee-simple interest in two data center properties across three buildings, will collateralize the transaction, and issue notes under a REMIC structure, according to a ratings analysts from DBRS Morningstar.
Asset Securitization Report's deal database reports that guidance on the notes is expected to range from 195 basis points on the 'AAA' notes to 420 bps on the 'BBB' notes, and that the deal is slated to close by the end of the month. Citigroup Global Markets, Goldman Sachs and Morgan Stanley are managers on the deal, according to the ASR database. Similarly, the banks' related mortgage entities—Citi Real Estate Funding, Goldman Sachs Mortgage, and Morgan Stanley Mortgage Capital Holdings—sold the interests into the trusts, according to the database.
Midland Loan Services will service the underlying mortgages, while Park Bridge Lender Services is the operating adviser on the deal, DBRS analysts said.
The issuer underwriting (UW) rent for data center space is about 17.9% below the sponsor's market rent estimates, opening a potential opportunity for the sponsor to raise rolling and expiring leases to rates that are closer to the market rents, analysts said. Also, the properties are located in Ashburn, Va., part of northern Virginia, which is the largest data center market in the world. It is also supported by some of the most favorable wholesale power costs and tax rates in the country.
In terms of leverage and equity, the loan is well positioned, DBRS observed. The $990 million mortgage loan represents an 88.33% loan-to-value on the DBRS Morningstar value of $1.1 billion. The rating agency believes this is a modest rate, compared with more fully leveraged single-asset/single-borrower transactions. Digital Realty is the data center's operator, which is another vote of confidence. For one, it is experienced: it has a portfolio of more than 300 data centers in 28 countries on six continents, and it has solid relationships with significant power users in a number of industries.
And given the current business environment that is shifting away from fossil fuels, it helps that 62% of the company's global power source is renewable.
DBRS expects to assign ratings of 'AAA' to the class A notes. Other ratings on the deal range from 'AA' on the classes X and B notes to 'BB' on the HRR notes, according to the ASR database. Moody's will also rate the notes, and assigns ratings ranging from 'Aaa' on the class A notes to 'A3' on the class C notes.
