GM Building shows up in another CMBS

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The General Motors Building, which already serves as collateral for a $1.35 billion commercial mortgage securitization, is showing up in another CMBS. It’s also the largest loan in conduit being marketed by Wells Fargo, accounting for 10% of the collateral.

In fact, the sponsor relies on the GM Building and a portion of another large loan, the Del Amo Fashion Center, a super regional mall Torrance, Calif., to offset the overall leverage in the deal. Both loans have investment grade characteristics, and together the loans account for roughly 15% of the collateral pool.

That helps hide a lot of sins, according to Moody’s Investors Service, which is rating the deal.

The overall leverage in Wells Fargo Commercial Mortgage Pass Through Certificates, Series 2017-C38, is lower than the average deal rated by Moody’s this year or last. It has a loan-to-value ratio, as calculated by Moody’s (MLTV), of 105.1%. Yet Moody’s is concerned about the dispersion of leverage. There are six loans representing nearly 10% of the pools with MLTVs of over 140%.

Also of concern, according to Moody’s, is the low level of amortization in the deal. Eighteen loans (56.5% of the pool balance) pay only interest, and no principal, for their entire terms. Another 12 loans (13.3% of the pool balance) pay only interest for part of their terms. Loans that do not repay principal are at higher risk of not being able to refinance when they come due.

Both Wells Fargo and a third party will retain a stake in the transaction in order to comply with risk retention rules. These rules were designed to encourage more conservative underwriting by ensuring that a party to the deal has skin in the game. However, Moody’s considers the impact of risk retention in this deal to be “credit neutral,” based on the structure of the transaction and the credit metrics of the collateral.

The loans were contributed by xx sellers: Barclays Bank (34.7%) , Wells Fargo (31.4%), Rialto Mortgage Finance (10.7%), C-III Commercial Mortgage (10.1%), UBS (7.9%), the remaining 5.2% were jointly contributed by Wells Fargo and Barclays.

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