Resource Capital Corp. is marketing a $376.7 million of bonds backed by mortgages on apartment buildings, hotels and office buildings in a state of transition.

Resource Capital Corp. 2017-CRE5 is the firm’s fifth commercial real estate collateralized loan obligation since 2013, according to Moody’s Investors Service.

The CRE CLO is a static transaction; however, Resource many use principal repayments to acquire “companion” loans, or debt secured against the properties in the portfolio on a pari passu basis, for three years after the close of the transaction. After the end of this period, repayments of loans in the portfolio will be used to pay down the principal of the notes to be issued.

The transaction cannot be called for two years.

Moody’s expects to assign an Aaa rating to the senior tranche of notes to be issued, which benefits from 46% subordination and has an assumed coupon of 115 basis points over one-month Libor. There are also two subordinate tranches of notes, one rated Baa3, and one unrated; all three tranches receive interest and principal. In addition, the CRE CLO will issue one unrated class of preferred shares that receives only residual interest and principal payment.
Wells Fargo Securities and Morgan Stanley are the underwriters.

All of the loans to be used as collateral have been identified, though one, a mortgage on the Hampton Inn Monroeville, representing 3.3% of the initial portfolio, has yet to close.

And all of the loans are first-lien mortgages.

The portfolio’s biggest concentration is to multifamily property (61.9%), followed by hospitality (16.2%) office buildings (12.9%), and retail (9%).

Like most CRE-CLOs, this one is backed by loans with credit characteristics deep in junk territory, reflecting the fact that the properties have not been performing well and are in need of either a major refresh or are being converted to a new use. The initial target collateral pool has a weighted average ratings factor of 5109, which is equivalent to a Caa1 rating with a recovery rate of 56.9%.

The properties are also heavily indebted: the portfolio has an loan-to-value ratio, as calculated by Moody’s, of 133.5%. In addition, 16, comprising 75.4% of the initial target collateral pool, have related unfunded future funding commitments, which total $28.3 million, or 7.5% of the initial target collateral pool.

C-III Asset Management will act as the servicer, and Resource Real Estate will act as special servicer for this transaction.
Resource Capital has issued and managed six securitized term financings totaling approximately $1.81 billion, according to Moody’s.

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