Deutsche Bank and JPMorgan are marketing $818 million of commercial mortgage bonds, with heavy exposure to New York City, according to Fitch Ratings.
Four loans (22.9% of the pool) are secured by properties located in New York, including three of the top six: 787 Seventh Avenue, 225 Liberty Street, and 600 Broadway are located in Manhattan. UA Sheepshead Bay Theater is located in Brooklyn.
Not surprisingly, give this geographic concentration, the transaction has an above average concentration of retail (34.9%), office (32.5%), and hotel properties (21.2%) compared with deal’s rated by Fitch in 2015.
On the plus side, the transaction has lower leverage than other recent Fitch-rated transactions. The debt service coverage ratio, as measured by Fitch, is 1.25x, compared with an average of 1.14x for deals rated by Fitch this year and 1.18x for deals rated by Fitch last year. Fitch puts the loan-to-value ratio for the trust at 98.7%, which is lower than both the YTD 2016 and 2015 averages of 108.7% and 109.3%, respectively. However, the average is helped by the inclusion of two loans with investment grade credit opionions; excluding these, the Fitch DSCR and LTV are 1.21x and 105.7%, respectively.
The pool is more concentrated than other recent Fitch-rated conduit transactions. The top 10 loans comprise 56.8% of the pool, which is in-line with the recent averages of 56.2% for YTD 2016 and above the 2015 average of 49.3%. Additionally, the loan concentration index (LCI) and sponsor concentration index (SCI) are 472 and 555, respectively, above the respective 2015 averages of 367 and 410.
The pool is scheduled to amortize by 9.4% of the initial pool balance prior to maturity, which is below average compared to the YTD 2016 and 2015 averages of 10.0% and 11.7%, respectively. Seven loans (38.6%) are full-term interest only and 11 loans (34.9%) are partial interest only.
Fitch-rated transactions in 2015 had an average full-term interest-only percentage of 23.3% and a partial interest-only percentage of 43.1%.
The trust will issue super-senior classes of notes with 30% credit enhancement and a subordinate ‘AAA’ rated class A-M with 22.125% credit enhancement; all are rated ‘AAA’ by Fitch. In its presale report, the rating agency noted that the so-called “junior A” tranche is “thinner” than it would normally like; the tranche is sized at just 2.0x Fitch’s base case expected losses, as opposed to 2.5x to 3.0x the base expected loss. The presale report does not indicate why Fitch nevertheless assigned its top rating to the subordinate tranche.