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Multifamily loans highlight small-balance CRE lender's $400M securitization

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A collection of older Bronx apartment buildings owned and managed by a prominent investor in rent-controlled New York residential properties highlights a $400.1 million CMBS backed by small-balance commercial lender Sabal Capital Partners.

SBAL 2020-RR1 Mortgage Trust is a securitization of 59 fixed-rate loans collateralized by 91 commercial properties, according to a presale report published Tuesday by Moody’s Investors Service.

A majority (33) of the pooled loans are from the multifamily sector, representing 64.7% of the pool balance. Among them are eight loans for individual mid-rise buildings owned by Emerald Equity Group — a real estate firm that has invested in over 1,800 apartment units in the Bronx. (Emerald also has apartment portfolios in Upper Manhattan, Harlem and Brooklyn that are not part of the trust's transaction.)

Six of the Emerald loans totaling $86.61 million are among the 10 largest in the conduit transaction, which is made up entirely of commercial and multifamily loans originated by Sabal. Sabal is owned by Stone Point Capital, and is a seller/servicer for Freddie Mac’s Targeted Affordable Housing Express Program and the GSE’s Small Balance Loan Program.

A presale report from Moody’s Investors Service did not state whether any of the loans were from either program. But over 90% of the pool consists of refinanced loans, which are treated as higher-risk loans than acquisition loans which reflect “a more accurate opinion of prevailing market property values,” and usually are “accompanied by a large cash infusion from a new sponsor” aligning with investor interests.

Refinancing, on the other hand, usually entails “a cash out of the sponsor’s initial equity investment" resulting in higher leverage ratios that negatively impact debt-service coverage.

Emerald Equity, which is led by principal and loan sponsor Isaac Kassirer, spent nearly $300 million in acquiring three portfolios of properties in the Bronx borough in 2016 and 2017, according to real estate trade publication reports.

Kassier has spent at least $3.9 million on six of the properties involved in the SBAL 2020-RR1 transaction that were evaluated by Moody’s. (Moody's limited its analysis to the top 10 loans in the pool.) The properties in those six pools are on average about a century old.

On its website, Emerald notes it acquires units to fulfill a mission offering lower rents to "workforce housing" tenants. "Through gut renovation and full rehab of each unit upon vacancy, Emerald has successfully repositioned thousands of rental units, creating brand new, well-appointed apartments at significantly lower rents," the company states on its website description of its Bronx portfolio.

Sabal will market four tranches of senior term notes with preliminary Aaa ratings: a Class A-1 tranche totaling $18 million, a Class A-2 tranche sized at $6.56 million, a Class A-3 offering at $232.7 million, and a Class A-AB tranche at $22.8 million. An $8.5 million senior-subordinate Class A-S tranche is rated Aa2, and two subordinate tranches of $43.5 million in Class B notes and $15 million in Class C notes are investment-grade rated at A3 and Baa3, respectively.

Moody’s also applied an Aaa rating to a $288.6 million tranche of interest-only notes tied to the senior-note principal of the deal.

Moody’s is not rating four tranches of Class D, E, F and G notes, according to the report.

The loans backing the notes carry a high weighted-average loan-to-value ratio of 123.3%, along with a high-concentration of loans that include interest-only payment periods. Thirteen of the loans (representing 38.6% of the pool balance) are interest-only for the duration of their loan terms.

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