Quick start to August CMBS issuance adds $4.3B to pipeline
A burst of $4.3 billion in newly rated commercial mortgage-backed securities in the past week sets a pace that could make August one of the busiest months this year for new CMBS deals.
In the first week of the month, securitizations of commercial mortgages backed by office, retail, multifamily and other CRE property types have entered the ABS pipeline, according to ratings agency presale reports and regulatory filings.
In addition to a $1.08 billion transaction from Goldman Sachs, new deals were also launched through Wells Fargo, UBS, Citigroup and a joint single-asset, single-borrower transaction from Morgan Stanley and Societe Generale.
Should all deals price before the end of the month, the volume of those deals alone (excluding CRE CLO transactions and Freddie/Fannie risk-sharing securities) has already nearly exceeded July’s total issuance of $4.5 billion, according to data from commercial real estate research firm Trepp.
Should banks launch and price as few as $2 billion in further securitizations this month, August would wind up with the second-highest monthly total for new-deal CMBS issuance for 2017. (The highest monthly volume on the year was in June, with $12.3 billion.)
New deals entering the pipeline include a third portfolio involving the $2.3 billion mortgage loan taken out by owners of the General Motors Building in New York’s Plaza District, and the further partition of a $430 million loan backed by adjacent Manhattan office towers that count Facebook and Buzzfeed as prime tenants.
Wells Fargo Commercial Mortgage Securities Trust 2017-C39
Wells Fargo 2017-C39 is a pool of 64 fixed-rate loans secured by 149 commercial properties that have an outstanding trust balance of $1.13 billion, according to Moody’s Investors Service. The collateral has a higher-than-average weighted loan-to-value ratio of 113%, as well as a high share of loans with subordinate debt, amounting to 29.5% of the pool balance.
The capital structure includes seven classes of senior notes totaling $793 million with preliminary AAA ratings from Moody’s and Fitch Ratings.
The largest loan in the portfolio comprises 6.2% of the overall pool: a $70 million controlling participation of the 10-year, interest-only $430 million whole loan originated by Barclays Bank. The loan was used to refinance debt for the early-20th century office towers at 225 & 233 Park Avenue South, two adjacent buildings that house corporate offices for Facebook and Buzzfeed.
The loan refinanced existing debt as well as provided a $159.4 million sponsor equity payout to building owners Orda Management Corp., which has helped finance $113 million in recent renovation and upgrades of the lobbies, outdoor space, new elevator cabs and new high-efficiency HVAC systems.
The remaining $235 million portion of the loan has been split into four other conduit transactions, including WF 2017-C39.
UBS’ new transaction will blend loans primarily from the office, retail, hospitality and multifamily sector in a notes offering backed by 42 loans for 64 properties with a $708.6 million trust balance, according to a prospectus regulatory filing and a ratings agency report from Kroll Bond Rating Agency.
The notes being issued for UBS' third commercial mortgage trust transaction this year include five classes of senior notes totaling $496 million, all supported with 30% credit enhancement. KBRA and Fitch have assigned preliminary AAA ratings; Moody's is also expected to rate the deal.
The three largest loans in the collateral are the $51.3 million 10-year loan by specialty drug firm Ionis Pharmaceuticals in Carlsbad, Calif.; a $50 million loan that was part of a $375.8 million whole loan for the high-end Del Amo Fashion Center in Torrance, Calif., used to fund a sponsor equity payout; and a $50 million loan participation in a $108 million financing for a 14-property multifamily development in Florida for commercial real estate developr Tzadik Properties.
The Ionis Pharmaceuticals loan is a single-tenant whole loan that the company matched with a $28.8 million equity payment to fund the acquisition of its new 176,000-square foot headquarters in Carlsbad.
Most of the loans in the pool (37) totaling $511.5 million are for refinancing purposes.
Citigroup Commercial Mortgage Trust 2017-B1
The top loan in Citi’s new $941.6 million 2017-B1 portfolio is another participation slice (sized at $92.7 million) from a whole loan taken out for the newly renovated General Motors Building in New York.
It’s one of the remaining portions of a $2.3 billion loan issued to sponsors Boston Properties Ltd. and SunGate Fifth Avenue to refinance debt and take out a $652.9 million equity stake. The loan is secured by the tenant leases and property value of the nearly 2-million-square-foot GM Building at 767 Fifth Avenue in the Plaza District of Manhattan.
The firms closed on the whole loan in June, and parceled nearly $1.35 billion of that into June’s BXP Trust 2017-GM transaction. A $90 million participation loan was also included in a Bank of America transaction in July (BANK 2017-BNK6).
As “trophy quality” Class A office space, according to DBRS, the GM Building has attracted tenants such as law firm Weil, Gotshal & Manges, cosmetics company Aramis as well as financial services firm Perella Weinberg. It is also home to Apple’s iconic “cube” store, with its glass-cube entryway to its flagship retail store.
The capital stack includes five series of Class A senior notes totaling $715.6 million, benefiting from enhancement in the form of 30% subordination and a preliminary AAA ratings from DBRS, Moody’s and Fitch. An $89.5 million subordinate senior tranche is also rated AAA, and has a credit enhancement level backed by 20% subordination.
DBRS notes the collateral has a high concentration of loans (30%) in nontraditional property types such as self-storage and hospitality — including four of the top 15 loans comprising 16.6% of the pool balance. “Each of these asset types is vulnerable to high [net cash flow] volatility because of the relatively short-term leases compared with other commercial properties that can cause NCF to quickly deteriorate in a declining market.”
The deal pools 48 loans for 69 properties, with an average loan size of $19.6 million and an above-average debt-to-service coverage ratio of 2.09x.
Most of the loans were originated by Citi, Morgan Stanley and Bank of America. The GM Building loan makes up 9.8% of the collateral pool.
MSSG Trust 2017-237P
The $477.8 million transaction is a single-asset, single-borrower securitization of a portion of a $693.2 million whole loan taken out for the 237 Park Avenue office building in Midtown Manhattan’s Grand Central submarket.
The $598.2 million first-lien mortgage loan was originated in late July by Morgan Stanley and Societe Generale, which along with a $95 million first-lien building loan brought together a combined principal balance of $693.2 million.
The proceeds, along with $87.8 million in mezzanine financing, were used to refinance $628.2 million of existing first-mortgage debt and mezzanine debt as well as fund tenant improvements and pay out $23.4 million in equity to sponsors RXR Realty and Walton Street Capital.
The trust’s collateral includes four pari passu Class A notes totaling $132.6 million and $345.2 million in four Class B notes.
The remaining $215.4 million of the whole loan will be split among eight Class A notes that will be disbursed to one or more future CMBS transactions, according to presale reports.
The $132.6 million Class A note carries a preliminary AAA rating from KBRA and S&P Global Ratings.
The building is located on the west side of Lexington Avenue between E. 45th and E. 46th streets, with major tenants including New York and Presbyterian Hospital, JPMorgan, J. Walter Thompson worldwide and Stifel, Nicolaus & Co.
The century-old building had a $62 million redevelopment project completed in June.