Exantas Capital issuing another (slightly less) static CRE CLO
Investors may be getting more comfortable with actively managed CRE CLOs, but Exantas Capital Corp. isn’t quite ready to take the plunge. Its next deal is backed by a static pool mortgages on properties being rehabbed or converted to a new use, though the collateral is slightly less static than that of a deal completed last year.
The $687 million XAN 2019-RSO7 is also notably larger than the sponsor’s 2018 transaction ($514 million) and 2017 transaction ($376 million).
The initial collateral consists of 32 floating-rate mortgages secured by 38 transitional properties totaling approximately $687.2 million. As with the prior deal, the securitization trust cannot use proceeds from the repayment of principal to acquire any “new” loans. However, 25 of the properties backed by loans currently in the trust have “future funding participations” totaling $59.4 million that the trust may acquire in the future. Essentially, Exantas has committed to lend the borrowers additional money under certain circumstances and it plans to fund these additional loans by adding them to the collateral for XAN 2019-RSO7.
This time, however, the commercial real estate collateralized loan obligation has 36 months to acquire the future funding participations, six months longer than Exantas’ prior deal.
The new deal is non-callable until May 15, 2021.
Like Exantas’ 2018 transaction, the new transaction’s biggest exposure by property type is multifamily, which accounts for 20 loans, or 61.8% of the initial principal balance. Apartment buildings are generally considered among the least risky property types; DBRS notes in its presale report that these buildings tend to benefit from “staggered lease rollover and generally lower expense ratios” compared with other property types.
However, one of the loans, accounting for 3.6% of the total collateral pool, is secured by student housing, which DBRS notes “often exhibit higher cash flow volatility than traditional multifamily properties.”
Office properties represent the next largest exposure, at 12.9% of the collateral pool, followed by hospitality at 9.6%; the latter is considered one of the riskier property types, because performance tends to be more volatile.
Among other potential concerns, according to DBRS, is the fact that four properties, representing 18.5% of the pool, have sponsorship with either “prior or pending litigation issues,” “inadequate experience commercial real estate experience,” or “low net worth and liquidity.”
Both DBRS and Moody’s Investors Service expect to assign triple A ratings to the senior tranche of Class A notes, which benefits from 43.25% subordination. That’s down slightly from 43.5% subordination for the comparable tranche of the prior deal.
DBRS is also assigning an AAA to the Class A-S notes with just 33% subordination.
Wells Fargo Securities, Barclays Capital and J.P. Morgan Securities are the placement agents.
As of Dec. 31, 2018, Exantas Capital Corp. had $2.1 billion of assets under management.