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Goldman Sachs' next CMBS has heavy exposure to single-tenant properties

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Goldman Sachs is marketing $756.4 million of mortgage bonds with unusually heavy exposure to properties with a single tenant, according to rating agency presale reports.

GSMS 2019-GC38 is backed by with 36 loans secured by 53 properties. Nine of the loans (29.2% of the total balance) are secured in whole or in part by 12 single-tenant properties. Kroll notes in its presale report that this is “meaningfully higher” than the average of 20.1% for the comparable set of deals it has rated, which ranged from 10.1% to 35.8%.

“Properties with multiple tenants that rely on a diversified tenant roster for their income stream can present less credit risk than properties that derive all of their cash flow from a single lessee,” the presale report states.

Fitch also considers the single-tenant exposure to be “high,” as it is above the averages for the conduit CMBS deals the rating agency rated in 2017 (which was 19.3%) and 2018 (22.6%).

On a positive note, Kroll says puts the overall loan-to-value ratio of debt held in the securitization trust at 95.4%, which is below the average of 96.3% for the 11 CMBS conduits it has rated by KBRA over the past six months, which ranged from 86.1% to 102.4%. It is also lower than the annual averages for recent-vintage KBRA-rated conduits, with the exception of 2013.

Helping to bring down overall leverage were the inclusion of portions of two loans accounting for 14.1% of the balance of the trust that while not publicly rated, have investment characteristics of investment grade. They are 365 Bond, the largest loan at 8.6%, a multifamily building in Brooklyn, New York; and Albertsons Industrial, the fifth largest at 5.5% of the balance, an industrial building in Melrose Park, Illinois.

Fitch does not view the leverage quite as favorably, however. It puts the LTV at 102.7%, which is in line with the 2017 and 2018 averages of 101.6% and 102%, respectively, for deals it has rated.

Nineteen classes of certificates will be issued in the transaction, of which 14 classes are entitled to principal and interest, three classes receive interest-only, one class receives excess interest from loans with an anticipated repayment date and one class is a residual interest. Kroll expects to assign a triple-A to the super senior certificates, which benefit from 30% credit enhancement, as well as to the senior support tranche, which benefits from just 22% credit support.

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