StorageMart is tapping the commercial mortgage bond market for a cash-out refinancing of 101 of self-storage properties.
Most of the properties, which are scattered across 17 states and have total square footage of 7.5 million of square feet were previously securitized in various conduit transactions in 2014 and 2015; they are now being bundled into a single transaction underwritten by Citigroup, according to rating agency presale reports.
In December 2018, StorageMart obtained a $644.1 million first mortgage and $170 million of mezzanine debt from Citi Real Estate Funding on the 101 properties; proceeds were used to defease and refinance $672.8 million of existing debt, fund $8.5 million for planned expansion and development, pay closing costs, and return approximately $107.7 million of equity.
The first mortgage, which pays a fixed rate of 4.7579103%, and no principal, for its entire five-year term, is being used as collateral for a transaction called CGCMT 2019-SMRT. It appears to be the first commercial mortgage bond securitization of 2019, and hits the market ahead of the annual Commercial Real Estate Finance Council meeting that typically kicks off the market in mid-January.
The portfolio of properties consists of 61,852 units with a total of 7.5 million of square feet; in total, 36.5% of the square footage is climate-controlled. The borrowers have a fee simple interest in all of the properties except for one (0.7%), which is secured by the related borrower’s fee simple and leasehold interest.
The prior debt encumbering 61 collateral properties (72.1%) was previously securitized in several transactions, according to Kroll. It was comprised of $402.3 million of a $412.5 million mortgage loan that was participated across the CGBAM 2015-SMRT ($312.6 million original balance), CGCMT 2015-P1 ($43.7 million), GSMS 2015-GC32 ($25.0 million), and MSBAM 2015-C23 ($31.2 million) transactions. Another $102.5 million of mezzanine debt was also held outside the trusts and securitized in the CGBAM 2015-SMMZ transaction.
The prior debt encumbering the remaining 40 properties had an aggregate balance of approximately $170.6 million from a variety of sources, of which $8.5 million was securitized in WFRBS 2014-C22.
Kroll Bond Rating Agency puts the loan-to-value ratio of the portfolio, based on debt held in the securitization trust, at 92.2%, which is relatively in line with the average of 91.6% for the single borrower CMBS securitizations it has rated over the last 12 months. However, this figure is lower than the average LTV, as calculated by Kroll, of the self-storage properties securitized in the 26 conduits rated by KBRA over the past 12 months of 103.2%.
After taking into account the mezzanine debt held outside the securitization trust, however, the LTV rises to 116.5%. “Should a default occur, the presence of additional debt could introduce additional creditors that could attempt to exercise remedies that are adverse to the trust, or support a bankruptcy plan that is adverse to the trust’s interests,” the presale report notes.
Among other factors the rating agency took into account is the geographic distribution of the properties, which are located in 24 different metropolitan statistical areas across 17 states. However, there is a sizable concentration in Missouri, 22.1%, including a single property at Wornall Road in the Kansas City area that represents 2.2% of the portfolio. (It’s the fifth largest property, overall.) Only two other states represent more than 10% of the pool balance: Florida (11.4%) and Illinois (10.6%).
Also, approximately 64.3% of the properties are located in secondary (52.7%) and tertiary (11.6%) markets, which have less favorable demographics and economic diversity than primary markets, and so are not in as good a positioned to withstand fluctuations and downturns in the national economy.
The assets were built between 1925 and 2016 and are on average approximately 26 years old. As of September 2018, the portfolio had a weighted average physical occupancy rate of 88.2%.
Historical data dating back to 2013 was only available for 61 properties (72.1%). However, these properties exhibited improved operating performance from 2013 to the trailing 12 months ended September 2018 in regard to both occupancy and net operating income.
Seven tranches of notes will be issued in the transaction; Both Kroll and Moody's Investors Service expect to assign triple A ratings to the senior tranche.
