Goldman Sachs is marketing a $465 million of commercial mortgage bonds backed a portfolio of 10 office properties in Houston, Texas.
The deal, dubbed GSMS 2017-GPTX is secured by a five-year, fixed-rate, first-lien mortgage secured by the 4.5 million square foot Greenway Plaza. The loan, which pays only interest, and no principal, for its entire term, was obtained by a joint venture between Parkway, a real estate investment trust (51%), the Canada Pension Plan Investment Board (24.5%), and Permian Investor LP, which is itself a joint venture controlled by an affiliate of TIAA Global Asset Management and Silverpeak Real Estate Partners (24.5%).
Moody’s has assigned provisional ratings to four classes of notes to be issued in the deal, including an Aaa to the senior tranche,
Among the major risks to the deal is its concentrated exposure to the Houston office market, which has slowed over the past year due to the confluence of declining oil prices and the delivery of approximately 8.0 million square feet of inventory in 2015. Major Houston tenants Shell, Marathon, BHP Biliton, and BP vacated significant blocks, as leasing activity in the first quarter of 2016 concurrently fell to its lowest volume in a decade with only 1.5 million square feet of newly rented area. Per CoStar, Class A Houston office space is currently 16.1% vacant.
Also, seven of the 10 largest tenants at Greenway Plaza, totaling 38.7% of net rentable area and 47.8% of base rent, have significant exposure to the energy industry, specifically oil and gas.
However, approximately 64% of the total energy rent is derived from tenants assigned an investment grade rating by Moody's. Further, the energy tenants represent multiple sectors within the industry including exploration and production, oil field equipment manufacturing, and oil field services.
The property leverage is also low; the rating agency puts the loan-to-value ratio at 65%.
Moody’s also takes comfort from the limited amount of expected turnover in tenants. As of Feb. 1, the property was 86.8% leased to over 200 tenants. Leases representing only 28.7% of net rentable area expire prior to the loan's maturity date, and no more than 7% expire in any given year during the loan term. And the six largest tenants which collectively represent 45.2% of net rentable area all have leases that expire after the loan's maturity date.
The largest tenant, Occidental Oil & Gas (27% of base rent), has been in occupancy since 1988, expanded in 2002, and moved its corporate headquarters to Greenway Plaza (from California) in 2014.
The second largest tenant, Invesco Investment Management (9.2% of base rent), has tenanted Eleven Greenway Plaza since 1980, and recently executed a nine year renewal in January 2014 that has an expiration date of December 2023
In addition to the certificates, the securitization trust will issue a separate interest which will be held by the mortgage loan sellers and will be generally entitled to a 5% pari-passu portion of the collections and recoveries on the related mortgage loans.