JP Morgan and Deutsche Bank are marketing $893 million of commercial mortgage bonds with unusually heavy exposure to office buildings and hotels, according to Fitch Ratings.
JPMDB Commercial Mortgage Securities Trust 2016-C2 is backed by 30 loans secured by 70 properties. Offices represent 39.8% of the pool and hotels represent 19.9%. That compares with an average office exposure of 23.5% office and hotel exposure of 17% in deals rated by Fitch in 2015. Hotels have a higher probability of default in Fitch’s multiborrower model because nightly rates fluctuate highly.
The pool is also more concentrated than other recent Fitch-rated multiborrower transactions. The top 10 loans comprise 59.5% of the pool, which is above recent averages of 55.8% for YTD 2016 and above the 2015 average of 49.3%.
This transaction has lower leverage than other Fitch-rated transactions: the debt service coverage ratio, as measured by Fitch, is 1.26x, less than the 1.18x for deals rated by Fitch this year. However, like many recent conduits, this one benefits from the inclusion of a pair of loans with investment grade characteristics that bring down the overall leverage in the pool. The first, 787 Seventh Ave (6.7% of the pool) is the second largest loan in the transaction and has an investment-grade credit opinion of ‘BBB+’ on a stand-alone basis; the second, Palisades Center (3.4% of the pool) is the fourteenth largest loan in the transaction and has an investment-grade credit opinion of ‘AA’ on a stand-alone basis. Excluding these loans, the conduit has a Fitch stressed DSCR 1.21x.
Fitch has assigned preliminary ‘AAA’ ratings to the deal’s super senior tranches, which benefit from credit enhancement of 30%, as well as to the senior tranche, which benefits from 21.5% credit enhancement.