Morgan Stanley and Bank of America's latest conduit CMBS securitizes a portion of a $249 million loan that is secured by a portfolio of U-Haul properties, according to Kroll Bond Rating Agency.
The U-Haul loan is rated an investment grade 'AA-' by Kroll and serves to improve leverage in the $822 million MSBAM 2015-C27 transaction. U-haul's portfolio is comprised of 105 self-storage facilities located in 35 states.
Only a $50 million slice of the senior portion of the U-Haul loans will be securitized but its enough to lower the pool's weighted average loan to value to 101.5%, which is marginally below the average of the 24 CMBS conduits Kroll rated over the last six months of 103.%. Without the U-Haul loan, which has an LTV of 57.2%, leverage in the pool climbs to 104.4%.
The U-Haul Portfolio is the fourth largest loan in the MSBAM 2015-C27 pool. The whole loan combination has a balance of $269.3 million and is comprised of a $159.0 million senior component and a $111.0 million subordinate component. The senior component is represented by four pari passu notes: a $50.0 million A-1A note, which is contributed to this securitization, a $50.0 million A-1B note that was contributed to the JPMBB 2015- C32 transaction; and the A-2A and A-2B notes with an aggregate balance of $59.0 million that were contributed to the MSJP 2015-HAUL.
The whole loan amortizes based on a twenty-year schedule, however the $50 million component included in MSBAM 2015-C27 will fully amortize over a ten-year term.
Properties with investment grade characteristics have skewed the overall leverage in conduit pools in several transactions that have come to market over the last six months. To be sure, MSBAM 2015-C26 pool included the 11 Madison Ave loan, which served to lower the leverage in that deal. That loan has been included in three other conduit transactions this year.
These investment grade loans are often combined with a large concentration of lower quality loans.
More than half of the MSBAM 2015-C27 is comprised of high leveraged loans with LTVs in of 100.0% but the average exposure to these loans in conduits rated by Kroll since May is even higher at 69.2%.
"Everyone gets comfortable with the top loans but at the other end of the pool you have more secondary and tertiary markets as well as more esoteric or non-traditional collateral creeping in," said Tom Cloutier, a director and research analyst at Conning, an investment management company that caters to insurers. "The combination of having only a limited amount of trophy assets looking to securitize and the fact that there are over 40 CMBS loan originators competing for loans inevitably puts pressure on underwriting quality going forward.”
Cloutier said he expected to see this trend continue into 2016 as trophy assets are increasingly taken out into private insurance portfolios and single asset CMBS deals and disappear from conduit pools.
In total MSBAM 2015-C27 will securitize a collateral pool of 55 loans that are secured by 167 properties. The largest loan in the pool is sized at $90 million and is secured by 535-545 Fifth Avenue, a 512,171 sf, mixed-use building located in the Midtown section of New York City. The top five loans, which also include Crowne Plaza - Hollywood, FL , Hotel Valencia Santana Row, U-Haul Portfolio and Granite 190 .
Nearly half of the loans (47.9% of the pool) pay interest only for at least a period of the loan's term, ranging from one to five years; 25.3% pay only interest for the entire term.
Kroll assigned 'AAA' ratings to both the super senior notes structured with 30% credit enhancement and the junior/senior notes structured with 23% credit enhancement.
