Deutsche Bank and Cantor Fitzgerald are marketing $1.3 billion of commercial mortgage bonds from the jointly led CCRE2015-CCRE24 conduit, according to Fitch Ratings.
Among the 81 loans backing the transaction pools are three investment-grade, credit opinion loans. These are typically larger balance loans, greater than $20 million, with lower leverage than typical conduit loans, good structure, experienced sponsorship, and are secured by good quality properties in primary markets.
“Credit opinion loans are commonly securitized in stand-alone securitizations and analyzed via Fitch's criteria for analyzing large loans in U.S. commercial mortgage transactions'," said Robert Vrchota, a managing director in Fitch's U.S. CMBS group.
These loans have typically made up less than 5% of conduit pools in 2014 and year to date 2015 transaction rated by Fitch Ratings.
They account for a much larger portion of COMM 2015-CCRE24:15.1%. The three loans are: the $119.4 million Lakewood Center Mall loan, which makes up 8.6% of the pool and has an investment-grade opinion of A+’; the $60 million, 40 Wall Street, which makes up 4.3% of the pool and has an investment-grade opinion of BBB−’; and the $30 million Avco Center loan, which makes up 2.2% of the pool and has an investment-grade opinion of 'BBB-’.
Lakewood Center Mall is a 2.1- million-square-foot super-regional mall and shopping center located within a highly competitive trade area of Los Angeles, CA. The 40 Wall Street property located in New York City is leased to 74 different tenants in a diverse range of industries including finance, banking, engineering, architecture, legal, education, technology, and religion. No tenant occupies more than 7.5% of total square footage and the tenant rollover is distributed evenly. Furthermore, only tenant rollover only exceeds 10% in one year of the loan term (2022) and 51.3% of the tenants roll during the entire loan term. AVCO Center is an office and retail property containing two adjacent buildings located on Wilshire Boulevard, which is one of the most heavily traveled thoroughfares in Los Angeles.
Credit opinion loans can improve the overall credit profile of a conduit, since they have lower leverage than the rest of the pool.
Such is the case in CCRE24 where the junior 'AAA' subordination would have been approximately 27.0% without the credit opinion loans, compared to 23.875% when the credit opinion loans are included. Likewise the 'BBB-' subordination would have been approximately 8.6% without the credit opinion loans compared to 7.375% when the credit opinion loans are included.
“So, a large amount of credit opinion loans is in theory a good thing compared to a deal that has no credit opinion loans,” said Vrchota.
The addition of these larger loans in conduit pool also may signal a turnaround in sentiment. Some of the allure of issuing large loan securitizations post financial crisis was because it was not practical to include commercial loans of several hundreds of millions of dollars in CMBS conduits, as was common in 2005, 2006 and 2007. That is because conduit deals had yet to reach the size that would provide enough diversification for a larger loan.