RAIT Financial Trust has launched its sixth commercial real estate (CRE) collateralized loan obligation (CLO), according to Moody’s Investors Service.
The transaction, RAIT CRE CLO 2016-FL6, is backed by a $258 million portfolio of mortgages on 33 properties. Moody’s expects to assign a triple-A rating to the $143 million tranche of notes to be issued; it’s not rating any of the subordinate tranches.
Among the strengths of the deal, according to Moody’s, is the fact that all of the loans are secured by first liens and have relatively short terms; the weighted average life of the portfolio is 4.0 years. This reduces the risk that manager would need to liquidate them when the CRE CLO matures.
The transaction is a static CRE CLO, meaning that RAIT cannot acquire new assets. However, for an initial, two-year period, it can acquire additional debt on properties already in the portfolio. These purchases must be funded by prepayments on the loans in the trust.
Moody’s also sees the mix of properties in the trust as a strength; 36.3% of the loans are secured by multi-family property and 33.7% by office properties. There is no exposure propertiy in the hospitality or healthcare sector, which the rating agency considers to be volatile asset classes.
The largest loan in the pool is a $28.96 million mortgage on the South Terrace Apartments, a 328-unit building in Durham, North Carolina.
The second largest is a $24.1 million mortgage on the Montague Business Center, which consists of two office buildings; Plumeria and Junction; both located in north San Jose, California.
Among Moody’s major concerns is the fact that the properties are highly leveraged, with an average loan to value ratio of 119.5%.
Also, three of the borrowers, whose loans comprise 21.9% of the initial pool balance, have the right to incur additional debt that ranks pari passu with that of debt held in the CRE-CLO. These future funding participations total $12.8 million, or 5% of the initial pool balance.
UBS, Barclays and Citigroup are the underwriters.
RAIT will act as servicer and special servicer.