UBS' next offering of commercial mortgage bonds features relatively higher exposure to hotels and retail properties, which are generally considered to be the riskiest types of property.
But the bank is balancing that exposure with a greater amount of property diversity and the the inclusion of three large investment-grade-type loans for the $804.9 million UBS Commercial Mortgage Trust 2018-C12.
There are 12 hotel properties that total 19.4% of the entire principal balance of the 75 properties included in the conduit/fusion CMBS transaction. That compares to a year-to-date average of 13.4% of conduit deals rated by Fitch Ratings, and 15.2% of deals rated by Moody’s Investors Service.
Hotels are historically properties with the highest probability of default in multiborrower transactions, according to Fitch.
The largest hospitality exposure is the deal’s $33 million share of a $46.2 million acquisition loan for a four-property Aspect RHG Hotel Portfolio taken out by Dubai-based Aspect Investment Partners.
The deal is also laden with a retail property exposure of 29.8%, another above-average concentration figure among both agencies’ rosters of rated 2018 conduit portfolios.
However, exposure to office properties, which can also have volatile income, is 25.9%, lower than the CMBS average of 32.7% by Fitch.
Moody’s stated some of the outlying risks are mitigated by the inclusion of three loans that were provided investment-grade-equivalent ratings through structured credit assessments.
In fact, one of the high-rated loans is also the deal’s largest (6.2% of the pool): UBS has assigned a $50 million slice of a $78 million loan used in the refinancing of the 1,175-unit Wyvernwood Apartments in Los Angeles, owned by the Miami real estate investment firm Fifteen Group.
The investment-grade equivalent loans are among the 25 loans (37.8% of the pool) with interest-only terms.
The pool consists of 65 loans, averaging $12.4 million with the 10 largest representing 40% of the pool balance.
Moody’s stated the weighted average loan-to-value ratio of 112.2% is in line with the first-quarter 2018 conduit average. Moody’s estimates the debt-to-service coverage ratio at 1.66x.
Both Moody’s and Fitch have assigned preliminary triple-A ratings to the six class of Class A notes totaling approximately $573.23 million, each benefiting with 30% credit enhancement. The deal also includes a double-A rated subordinate senior tranche of notes totaling $69.4 million, and four classes of unrated junior notes adding up to $91.8 million. Three tranches of interest-only notes are also part of the transaction.
Also part of the deal is a residual interest stake of at least 5% that will be by a KKR Real Estate affiliate as a third-party purchaser, according to the presale reports.
All of the loans were originated between six lenders: UBS (35% of the pool’s principal balance), Societe Generale (16%), Ladder Capital Finance (12.7%), Rialto Mortgage Finance (9.5%), Cantor Commercial Real Estate Lending (8.1%), CIBC (7.8%) and Natixis Real Estate Capital (10.8%).
The deal was underwritten by UBS, Societe Generale, Natixis, Cantor Fitzgerald, CIBC, Drexel Hamilton and Academy Securities.