The real estate arm of another private equity firm is marketing its debut commercial real estate collateralized loan obligation.
TPG Real Estate Finance Trust (NYSE: TRTX), a real estate investment trust controlled by TPG Capital, last week launched a $932.4 million transaction backed by 26 bridge loans secured by 63 commercial properties that are being rehabbed or converted to a new use.
It follows on the heels of the Blackstone Group, which launched a similarly sized CRE-CLO last year. Both deals are roughly twice the size of other CRE CLOs brought to market since the financial crisis. The market offers an increasingly attractive way to finance lending that has traditionally been kept on balance sheet. Issuance by players of all sizes nearly doubled last year, to over $6 billion, and is expected to keep growing.
While Blackstone's deal is notable for being backed by some landmarked properties, the credit characteristics of loans backing TPG Real Estate Finance 2018-1, as measured by Moody's are slightly better. The initial assets have a weighted average rating factor, or WARF, of 4579; by comparison, the initial assets backing Blackstone's deal have a WARF of 4702. Both are equivalent to a Caa1 rating.
Like most recent transactions, TPG Real Estate Finance 2018-1 is a static; the sponsor cannot actively trade the loans in the portfolio. However, proceeds from the repayment of principal balances can be used to acquire additional, interests in loans from the remaining portfolio of initial assets.
The deal cannot be called before August 2019.
The portfolio contains a mix of core property types, including multifamily, office, retail and industrial. The top five loans constituting 28.6% of the pool and no single obligor is greater than 6.4% of the total pool balance.
Moody’s considers TPG Real Estate Finance 2018-1 to be highly leveraged; it puts the loan-to-value ratio of the portfolio at 123.4%. But that is lower than the LTV for Blackstone's CRE-CLO, which Moody's calculates to be 128%.
The largest asset, at 6.4% of the collateral pool, is a two-year, $60 million loan secured by a 314-unit multifamily high rise in Cliffside, N.J. The property was newly developed in 2017, and has 49,592 square feet of commercial space and a subterranean parking garage containing 596 spaces. However, as of Dec. 31, only 6.1% of the multifamily space was occupied and 57.4% of commercial space was preleased to retail and office tenants as of Oct. 31.
The second-largest asset is a two-year, $58.5 million mortgage on an 845,000-square-foot suburban office complex in Dallas. The complex was constructed between 1980 and 1982 and as of Oct. 31, 2017, it was 60.3% occupied. The owner plans for $7.3 million in capital improvements to address primarily common areas, tenant lounges and other improvements.
Seven tranches of rated notes will be issued in the transaction. Moody’s expects to assign triple-A ratings to the senior tranches; it is not rating the subordinate notes.
Wells Fargo Securities, Goldman Sachs and Morgan Stanley are the underwriters.