This Single Asset CMBS Backed by Las Vegas Shopping Mall

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JPMorgan Chase, Bank of America and Wells Fargo are securitizing a portion of the mortgage on The Shops at Crystals, a Las Vegas luxury shopping mecca of gilded names like Louis Vuitton and Prada.

The Shops at Crystals Trust 2016-CSTL will issue seven classes of (including two interest-only tranches) that are secured by a $300 million portion of a 10-year $550 million commercial mortgage.

Standard & Poor’s has assigned a preliminary ‘AAA’ rating to $112 million of the senior, class A notes. The Class A notes as well as a $20.7 million tranche of class B notes rated ‘AA-’ include a notional amount of Class X interest-only notes that will be reduced through principal distributions and realized losses.  

The trust will also issue $50.7 million of class C notes rated ‘A-’; $63.8 million of class D notes rated ‘BBB-’; and $52.8 million in Class E notes rated ‘BB’. 

The three banks are retaining $250 million in non-trust notes that are pari passu to the Class A and B notes.

The notes are backed by the fee interest from the borrowing entity, The Crystals Las Vegas, which is indirectly owned by real estate investment trust and nationwide mall developer Simon Property Group.

S&P says the commercial loan is “moderately leveraged” at 76.6%, due to high occupancy and sales performance of the luxury retailers in the centrally located Shops at Crystals that was built in 2009. The loan has a fixed interest rate of 3.74%.

Total sales in 2015 were $1,330 per square feet, and total net income was $46.4 million, according to S&P.

Other tenants include gold-plated retailers like Fendi, Gucci, Cartier, Versace, Tiffany & Co. and Hermes, giving the Shops a 91% occupancy rate. Hermes recently signed an expansion agreement that will boost its presence to 13,507 square feet, to make it the largest retailer in the complex within the popular CityCenter district next to the Aria Resort and Casino.

Crystals Las Vegas has more going for it than the well-heeled customer base of its tenant stores; the mall also has  no subordinate debt, nor is it permitted to add any during the tenure of the interest-only loan.

Still, the deal has some key risks: the Shops are heavily dependent on Las Vegas tourism, which had a record year in 2015 with 42.3 million visitors – but could decline due to an economic slowdown.

There is also significant lease rollover risk: nearly 86% of the gross leasable area in the mall has leases that will expire during the life of the loan, with 26.3% set to expire by 2019.

S&P included a slight 5.7% haircut to the issuer’s projected net cash flow from the leases, with the ratings agency deducting from the estimated gross potential rent and capping the effective gross income stated by Crystals.

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