Ladder Capital going it solo again, this time with a CRE-CLO
Ladder Capital is going solo in the securitization market again, but this time it is bundling short-term loans on transitional commercial properties into collateral for bonds.
The real estate investment trust is a frequent contributor of commercial mortgages to other issuer’s deals — 43 of them over the years. But in June, it struck out on its own, repackaging $626 million of loans it had originated itself.
CEO Brian Harris later suggested that the company’s decision was related to the slower pace of issuance of CMBS this year, makes it difficult for a stand-alone finance company with limited balance sheet capacity to wait to piggyback on Wall Street’s transactions.
Unlike the prior transaction, which was backed by longer-term loans (generally 10 years) on stabilized properties, the new transaction, LCCM 2017-FL1 CRE Trust, is primarily backed by short-term loans used to acquire or refinance properties that are in need of upgrades or are being converted to a new use, according to Kroll Bond Rating Agency. And most were originated by Ladder and held on balance sheet.
The exception is the largest loan, Two Gateway, which represents 13.6% of the initial pool, and is secured by a 17-story, 765,949-square-foot, Class-A office building in downtown Newark, New Jersey. This is an amendment and restatement of a previous loan that was effectuated in conjunction with Ladder Capital’s acquisition of the related A note.
All told, there are 19 loans secured by 20 properties located in 13 states. The top three exposures are California (13.7%), New Jersey (13.6%) and Illinois (11.3%).
Unlike some other CRE CLOs issued this year, which allow proceeds from interest and principal payments on collateral loans to be used to acquire new collateral, LCCM 2017-1 FLI will have a limited ability to reinvest. Loan proceeds can only be used to acquire additional debt encumbering existing properties.
Kroll notes that the trust loan collateral is highly leveraged, with a weighted average loan-to-value ratio, as calculated by the rating agency, of 119.4%. That’s higher than the five prior CRE CLO transactions it has rated this year of 116.1%
Kroll expects to assign an AAA rating the super senior tranche of notes, which benefits from 46.5% credit enhancement, as well as to a tranche with 38.625% credit enhancement. There are five other tranches with ratings ranging from AA- to B, as well as an unrated tranche. All of the notes have a final payment date of September 2034.