The first offering of commercial mortgage bonds to launch this week is a conduit transaction that benefits from exposure to two properties with investment-grade credit characteristics: a super-regional mall outside of Detroit and State Farm’s regional headquarters in Tempe, Ariz.
The $1.1 billion BENCHMARK 2018-B3 is backed by 45 loans secured by 89 properties contributed by Deutsche Bank (42.8%), JPMorgan Chase (35.3%) and Citibank (21.8%), according to rating agency presale reports.
The overall pool has a weighted average in-trust loan-to-value ratio, as measured by Kroll Bond Rating Agency, of 101.2%. That’s above the average for conduits rated by Kroll over the last six months, which ranged from 81.8% to 104.1%.
Fitch puts the pool’s LTV even higher, at 107.6%, which is slightly worse than the 2017 average of Fitch-rated conduits of 101.6%.
However, the overall leverage would have been even higher if not for the inclusion of a $49.9 million portion of a $300 million first mortgage on Twelve Oaks Mall, which is the fourth- largest loan, representing 4.6% of the total pool balance. Kroll considers the loan to have characteristics commensurate with a BBB rating; Fitch has a slightly lower opinion, likening it to a BBB- loan.
Kroll considers a loan on Marina Heights State Farm to have BBB- characteristics. A $45 million portion of the $560 million loan accounts for 4.1% of the pool balance. (A larger portion of the loan was securitized in a single-asset transaction in December 2017.)
Both Kroll and Fitch cite the geographic diversity of the loans as well as the diversity of property types as strengths. The properties are located throughout 33 MSAs. The top five MSAs are Los Angeles (11.5%), New York (11.0%), Boston (6.9%), Washington (6.5%) and Chicago (6.3%).
By property type, the transaction’s largest exposure, office (35.7%) is consistent with that of many recent conduits. The pool’s second and third largest property-type exposures are lodging (20.1%) and retail (20%).
Fitch also cites the pool’s diversity as a strength. The top 10 loans comprise 45% of the pool, which is below the 2017 average of 53.1% and in line with YTD 2018 average of 45.1%.
KKR Real Estate Credit Opportunity Partners Aggregator I, as a third-party purchaser, will purchase and retain on an ongoing basis an “eligible horizontal residual interest."
Both Fitch and Kroll expect to assign triple-A ratings to the super senior classes of notes, which benefit from 30% credit enhancement, as well as to a junior triple-A-rated tranche that benefits from just 22.25% credit enhancement.
Last week, four private-label CMBS totaling $2.07 billion priced, including two conduits, a small-balance deal and a commercial real estate collateralized loan obligation, according to JPMorgan.
The triple-A-rated, 10-year or last cash flow tranche of notes issued via the $722 million WFCM 2018-C43 pays swaps plus 76 basis points to yield 3.66%, analysts at the bank wrote in a report published Friday. The comparable tranche of the $887 million GSMS 2018-GS9 pays swaps plus 79 basis points to yield 3.64%.
