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Next single-asset CMBS backed by regional State Farm HQ

Goldman Sachs and Deutsche Bank are marketing $264 million of mortgage bonds backed by a newly constructed office complex in Tempe, Ariz., that serves as the regional headquarters for State Farm Automobile Insurance Co.

The 2-million-square-foot, seven-building office complex was acquired by JDM Partners and Transwestern Investment Group in a sale-and-leaseback agreement, according to S&P Global Ratings. Total financing for the complex includes a $560 million first-lien mortgage and $375 million of equity.

The loan, which pays a fixed rate of 3.5595% interest, has a 15-year term but is expected to be repaid in 10 years. A $264 million portion serves as collateral for a transaction dubbed GS Mortgage Securities Corp. Trust 2017-FARM; the remaining portion was split into seven pari passu notes that are currently being held by Goldman and Deutsche and will be securitized in future transactions.

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The mortgage has a “strong” debt service coverage of 2.47x, according to S&P, which was calculated using the 3.5595% fixed interest rate and its own net cash flow for the property, which is 21.1% lower than the issuer's net cash flow.

S&P considers the loan to be “moderately low leveraged,” with an 80.9% loan-to-value ratio, based on its valuation. (The LTV ratio based on the appraiser's valuation is 58.3%.)

State Farm's leases, which account for about 97.1% of the net rentable area and 98.8% of the total gross rent as calculated by S&P, have limited rollover risk as they extend an average of 10 years beyond the anticipated repayment date in 2028.

Another strength, according to S&P, is the experience and financial strength of the sponsors. It noted that Transwestern, a real estate investment adviser, has approximately $3.4 billion in assets under management and has completed two other similar super-regional headquarters sale-leaseback transactions with State Farm.

JDM is a Phoenix-based full-service real estate firm that develops and manages real estate properties in Arizona and Colorado. It has approximately $1.2 billion in assets under management.

S&P expects to assign an AAA to the senior tranche of notes; it is not rating the subordinate tranches.

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