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Refinanced loans for office and water parks highlight $938M Wells CMBS

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Refinanced commercial mortgages for a renovated office park in Florida and a Great Wolf Lodge water park location in Southern California highlight a new $937.9 million conduit securitization by Wells Fargo.

The 64 loans held by Wells Fargo Commercial Mortgage Trust 2019-C50 are secured by 346 commercial properties, with the largest mortgage ($43.5 million) taken out by the developers of the Crown Center Office Park in Fort Lauderdale, Fla.

The full first mortgage taken out by real estate developer Midgard Group covers a refinancing of existing debt, as well as a $5.2 million equity cash payout to Midgard to compensate for recent renovations completed to the 32-year-old, five-building complex.

The refinancing completes a five-year turnaround for the property, which endured the loss of two major tenants in 2013 and 2014 (Bank of America and the U.S. Drug Enforcement Agency) that placed a previous commercial real estate loan for the property on a troubled-loan watch list, according to a presale report from Moody’s Investors Service. But Midgard “covered out of pocket service shortfalls, and completed significant capital improvements” before it refinanced the debt through a $33.8 million bridge loan that is being paid off with the new loan.

Although the $43.5 million loan represents a high loan-to-value ratio of 152.6%, Moody’s estimates a debt service coverage ratio of 1.02%. The loan is the largest loan in Wells Fargo’s transaction, covering 4.6% of the notional balance of the pool.

The loan for the Great Wolf Lodge in Southern California is a controlling $35 million portion of a non-amortizing, 10-year, $150 million mortgage refinancing taken out in March by McWhinney Real Estate Services and Great Wolf Resorts Inc. The loan proceeds, along with a $20 million note and $15 million in sponsor equity, were used to refinance existing debt of $180 million and to fund reserves for the Garden Grove, Calif., resort, according to Fitch Ratings.

Moody’s noted the property cash flow supports a DSCR of 1.62x.

The new transaction is backed by 20 classes on both principal and interest-only notes, including five classes of triple-A-rated senior notes supported by 30% credit enhancement. The notes are secured by loans that were originated by Wells, UBS, Rialto Mortgage Finance, Barclays Capital Real Estate, Argentic Real Estate Finance and Rialto Real Estate Fund III - Debt LP, according to the reports.

Moody’s states that some positive features of the pool includes two loans with an investment-grade structured credit assessment, along with diverse loan-level and property profiles. Offsetting these strengths are the pool’s high weighted average Moody's loan-to-value, weak amortization profile and asset class composition.

Fifteen of the loans are cross-collateralized, representing 31.8% of the pool balance involving multiple properties, supporting greater stability in cash flow for the transaction. Only 9.6% of the pool’s balance are tied to properties with single tenants, which is below the average single-tenant share of 16.6% in conduit transactions rated by Moody’s in 2018.

A large portion of the pool (26.8% of the balance) covers 20 loans that were used for acquisition financing. Such deals have limited operating history but usually involve large cash infusions from a new sponsor or owner, which, according to Moody’s, means a “greater alignment of interest” from the sponsor toward a later refinancing that benefits the property while providing the sponsor a cash-out opportunity.

Both Fitch and Moody’s noted a high concentration of interest-only loans, representing 29.7% of the pool balance. Another 39.7% have initial interest-only periods.

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CMBS Refinance Wells Fargo