Two conduit deals have joined the new issue pipeline totaling approximately $2.4 billion in securities backed by commercial mortgage loans.
Wells Fargo and RBS plan to issue $1.24 billion of securities backed by 122 fixed-rate loans secured by 146 commercial, multifamily, and manufactured housing properties., according to a Morningstar ratings presale report.
The transaction will issue seven classes of class A notes totaling $1.09 billion, which Morningstar expects to rate AAA’; $98 million of class B notes rated AA-’; and $53.46 million of class C notes with A-’ratings.
All of the loans were originated within the past seven months. The largest loan exposures, Fairview Park Drive (a 15-story, 360,864 square foot Class A office building located 15 miles west of Washington, D.C. in Falls Church, Fairfax County, Virginia) and Queens Atrium (a two building, 1.03 million square foot, Class B office property, located in Long Island City, Queens County, New York) each accounts for 6.3% of the portfolio balance and the third largest loan, Sheraton Austin represents 4.7% of the portfolio.
Some of the loans have the same borrower, which Morningstar said may pose additional risks for the transaction. “For example, financial difficulty at one property could cause the owner to defer maintenance at another property in order to cover expenses at the troubled property or the owner could attempt to avert foreclosure on one mortgaged property by filing a bankruptcy petition that might have the effect of interrupting monthly payments for an indefinite period on all related mortgage loans,” the report states.
Fifteen of the loans in the pool are secured by residential cooperative properties, which are “entitles the tenant-stockholders to proprietary leases or occupancy agreements, which confer exclusive right to occupy specific units,” the presale states. That means the loans are structured with deviations from typical loans in the pool. These loans sometimes “permit the borrowers to incur subordinate debt secured by a second mortgage on the related property, do not require special purpose entities as borrowers, independent directors or nonconsolidation opinions, rely on appraised values derived using specific standards for residential cooperatives, have no recourse carveout guarantor, have broader transfer provisions than preferred and upon foreclosure, in the event such property becomes a rental property, all or certain units could be subject to rent control, stabilization and tenants’ rights laws, at below market rents”.
These deviations from typical CMBS loans could increase certain risks of default and affect lender’s rights, remedies and recoveries on the assets, according to Morningstar.
Citigroup and Goldman Sachs are preparing a $1.2 billion conduit, CGCMT 2014-GC23. Kroll Bond Ratings has assigned preliminary ratings to the deal, which is backed by 80 commercial mortgage loans secured by 99 properties.
The capital structure will offer $957.9 million of AAA’ rated securities; $80 million of AA’ rated securities, $49.2 million of A-’ rated securities; $64.6 million of BBB-’ rated securities; $21.64 million of BB’ rated securities; and $9.2 million of BB-’ rated securities. Also on offer are $46.2 million of class G notes that have note been rated. The notes are due July 2047.
The largest loan, which accounts for 11.4% of the pool, is backed by 28-40 West 23rd Street, a 571,205 square foot mixed-use building located in New York City. The top five loans also include Selig Office Portfolio (7.9%), Hyatt NYC Portfolio (7.3%), Chula Vista Center (5.7%), and Palm Islands Apartments (5.2 %).
The loans were contributed by five mortgage loan sellers, Goldman Sachs Mortgage Company (16 loans, 38.7%), Citigroup Global Markets Realty Corp (14 loans, 24.1%), Rialto Commercial Mortgage Funding (30 loans, 23.7%), MC-Five Mile Commercial Mortgage Finance.
