Morgan Stanley and UBS’ latest offering of commercial mortgage bonds is most notable for what it lacks: a large number of loans with very high leverage.
The $805 million MSCO 2015-UBS8 is backed by primarily retail properties. Like many recent CMBS, it includes large loans with investment grade characteristics, in this case, Florida Keys Outlet Center and Charles River Plaza North. But unlike many recent deals, it has a low exposure to loans at the other end of the spectrum, those with loan-to-value (LTV) ratios in excess of 100%.
According to Kroll Bond Rating Agency, this absence of highly leveraged loans has a bigger impact on the deal's overall credit metrics than the inclusion of the high quality loans.
Florida Keys Outlet Center is an outlet center located in Florida City, FL and the 12th largest loan in the MSCI 2015-UBS8, representing 2.1% of the pool balance. The loan has characteristic equal to a 'BBB' rating, according to Kroll. Charles River Plaza North, a medical office located in Boston's Central Business District, represents 1% of the total pool balance and has the characteristics of a 'BBB-' loan.
The two investment grade properties represent just over 3% of the overall loan balance, a smaller slice of the pool relative to other recent conduit pools. Of the 28 previous transactions rated by Kroll over the last six months, 18 have exposure to investment grade loans ranging from 3.5% to 18.8%
Yet MSCI 2015-UBS8 has weighted average LTV as measured by Kroll of 100.6%, among the lowest of conduits rated by the rating agency in the last six months. Kroll did not list what the LTV would be is the investment grade loans had not been included.
That is because the pool has a low exposure to loans with LTVs in excess of 100%. Only 24 of the 57 loans backing MSCI 2015-UBS8 have LTVs higher than 100% (47.7%), which is significantly below the average (68.5%) of the comparable set, which ranged from 52.4% to 81.4%.
The largest loan in the pool is sized at $70 million and is secured by 525 Seventh Avenue, a 505,273 square foot, class-B office building located in the Garment District of New York. The top five loans also include Ellenton Premium Outlets, Camino Village, Meridian Office Complex, and Grove City Premium Outlets; together these loans represent 36.8% of the initial pool balance.
Among other risky characteristics, over 66% of the pool (27 loans) pay only interest for at least part of their term: 19 (37.6%) pay only interest for a partial term and 8 loans (29.3%) pay only interest for their entire term. The balance of the pool is comprised of amortizing balloon loans.