Ladder Capital is securitizing a $450 million five-year commercial mortgage loan that is backed by a San Francisco multifamily complex, according to a pre-sale report from Morningstar. 

Morningstar is rating the deal, called LCCD 2014-PKMD. The rating agency expects to assign ratings of ‘AAA’ to $390 million of class A notes that have credit enhancement at 13.33%; ‘AAA’ ratings to $33.5 million of class B notes with credit enhancement at 5.8%, and ‘AA+’  ratings to $26.4 million of class MR-C notes.

The property, called Parkmerced, has 3,165 units and sits on 152 acres of land. Collateral for the loan also includes three parking structures containing 1,655 spaces, ten common-area buildings containing 50,000 square feet and approximately 150 carports with 1,506 spaces.

All the units are subject to San Francisco rent control and 191 units, representing 4.9% of net rent, are rented by Section-8 tenants, which means their rent is subsidized and therefore below market. Still, the property’s cash flow has upside potential because rent adjusts up to market prices when a tenant vacates and one of the buildings, owned by Maximus Real Estate Partners, ended its participation in the Section 8 program in 2011. No new Section 8 tenants are expected over the loan term.

Morningstar stated in the report that in-place rents at the property are about 30% below market rents as a result of the rent-control laws.

Along with the senior  loan, two additional mezzanine loans are included in the trust that total $773 million.  All of the loans pay only interest for the life if the loans.

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