Stonemont Financial Group, an Atlanta-based real-estate-management firm, is tapping the commercial mortgage bond market to help finance its acquisition of a portfolio of 100 office buildings, industrial and retail properties.
Last month, the Stonemont obtained an $800 million mortgage on 94 of the properties from three banks, JP Morgan, Barclays, Deutsche Bank. The loan, which pays a floating rate of interest, and no principal for its entire term of up to five years, is being used as collateral for Stonemont Portfolio Trust 2017-STONE.
It is the first commercial mortgage offering to come to market since Labor Day.
Proceeds of the loan, along with mezzanine loans totaling $274.1 million, were combined with $181.0 million of preferred equity and $72.5 million of sponsor equity to acquire the portfolio for $1.294 billion and pay closing costs, according to Fitch Ratings.
Fitch’s presale report does not list the seller of the portfolio, but the Wall Street Journal has reported that it was Oak Street Real Estate Capital, a private equity firm based in Chicago. Oak Street will continue to provide management services to Stonemont.
Fitch expects to assign an AAA to the senior tranche of mortgage bonds to be issued, which benefits from 56.9% credit enhancement. Five other tranches of notes with ratings ranging from AA to B will be issued, along with two unrated tranches of securities to be retained in order to satisfy risk retention requirements.
Among the strengths of the transaction, according to Fitch, is the fact that investment-grade tenants account for approximately 90.7% of the allocated loan amount . All of the tenants are considered long term with lease expirations more than three years beyond the initial loan term.
And eight of the properties serve as the global, national, or divisional headquarters for the respective tenants. These properties include: Anthem BCBS of Missouri, Anthem Health Plans of Maine, Anthem Health Plans of Virginia, Ericsson, Motorola Solutions, Tate & Lyle, United Wisconsin and Weatherford International.
However, the portfolio is highly leveraged. Fitch puts the loan-to-value ratio of debt in the securitization trust at 99.3%; after taking into account debt held outside the trust, the LTV rises to 155.7%.
Another risk is that the Stonemont’s debt servicing costs could rise as interest rates head higher. The loan pays a rate of one-month Libor plus 2.120462%. The borrower was required to enter into an interest rate hedge agreement, which provides for a LIBOR strike price of 2.75%. Based on this rate cap, the highest all-in rate would be less than Fitch’s stressed mortgage constant of 10%.