Hudson's Bay is securitizing a $846.2 million loan that is backed by a portfolio of 24 Lord & Taylor and 10 Saks Fifth Avenue stores located in malls and freestanding locations in 15 states, according to Morningstar.

The sponsor owns the portfolio jointly with Simon Property Group, or SPG, the largest real estate investment trust (by market capitalization) in the United States.

The loan backing Hudson's Bay Simon JV Trust 2015-HBS Series 2015-HBS is structured with one floating-rate and two fixed-rate components: the $149.9 million floating rate “Component A” has a two-year initial term and three one-year extension options; the $371.2 million fixed-rate “Component B” has a seven-year term; and the $324.9 million fixed-rate “Component C” has a 10-year term. The properties collateralizing the mortgage loan secure the entire loan balance rather than the individual loan components.

"The transaction has a novel structure in that the various loan components have different terms, and principal prepayments may be distributed to subordinate classes despite their lower payment priority compared to the more highly rated classes," according a presale report from Standard & Poor's, which is also rating the deal.

The loan is highly levered. Morningstar calculates its loan-to-value ration at 87.9% and S&P at 89.8%. The higher leverage and the fact that the loan pays only interest for its entire term increases refinance risk at maturity, particularly in a high-interest rate environment, according to Morningstar.  The appraisal LTV is much lower at 60.4%. 

However, the portfolio has strong tenancy. Each of the 34 properties is 100% leased as part of a sale/leaseback transaction under a new 20-year lease term with four extension options of six years and one extension option of four years, 11 months, and 20 days for properties located in New York, and five, six-year renewal options for all other properties. The lease is fully triple net; the tenant bears all expenses, and the lease allows for annual rent increases of 2.0%. In addition, Hudson's Bay guarantees all rental obligations under the master lease.

The loan finances a portion of the sponsor’s $1.44 billion acquisition of the 34 properties. JPMorgan Chase Bank, National Association, Column Financial, Inc., Bank of America, N.A. co-originated the trust loan.

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