Seventy fixed-rate loans will serve as collateral for the $507.5 million in sequential, pass-through certificates from the Real Estate Liquidity Trust, series 2025-1.
The collateral pool has a scheduled amortization to a balloon loan-to-value (LTV) ratio of 58.1%, and an issuance LTV of 64.9%, according to Morningstar | DBRS. The rating agency noted that a significant percentage of the pool balance, 40.8% (derived from 32 loans) show a DBRS issuance LTV exceeding 67.1%, which generally indicates an increased default frequency.
Just one loan, which represents 0.4% of the pool balance, shows an issuer term debt service coverage ratio (DSCR) lower than 1.25x, which generally indicates a higher likelihood of a midterm default.
Among the deal's credit strengths, 81.2% of the pool balance, or 66 loans, have full or partial recourse credit in the rating agency's insight model, which they get from recourse to individuals and real estate investment trusts (REITs) or established corporations. Further, the pool has a WA seasoning of 33 months, DBRS said, adding that seasoned loans are performing in line with expectations with no reported default events.
Among other credit strengths, Real-T 2025-1 benefits from a reserve fund, overcollateralization, excess spread and subordination.
All the loans are amortizing, without any interest-only periods, DBRS said. The pool is expected to amortize by 11.0% during the life of the transaction, which gives the deal its balloon LTV ratio mentioned earlier.
But the deal has several credit challenges. Among them is its hotel exposure, DBRS said. There's a Sheraton Gateway Hotel Toronto in the pool, and hotels have historically shown higher loss severities in the event of a default.
Yet there are a couple of mitigating factors to the hotel risk. The implied cap rate was raised by 193 basis points, giving the deal a higher issuance LTV and balloon LTV. The Sheraton Gateway Toronto's location in a major city, a high-traffic area, also lends to its strong revenue per available room, or RevPAR, growth from 2022 to 2024.
DBRS assigns AAA to the A notes; AA to classes B and X; A to the class C; BBB to classes D1, D2 and E; BB to class F and B to class G. Moody's, meanwhile, assigns Aaa to the class A notes.
