Velocity Commercial Capital plans to issue a $191 million commercial real estate collateralzied loan obligation.
The transaction is backed by a pool of 631 small-balance fixed and adjustable rate mortgages secured by 651 properties, according to Kroll Bond Ratings.
The loans have an average principal balance of $303,895, and range from $41,766 (0.02% of the total pool balance) to $5.3 million (2.7%).
The majority of the loans (96.1%) were originated by Velocity Commercial Capital (VCC), and the balance was acquired from 12 different financial institutions. Most of the loans that were originated since 2013 (92.3%), and the balance are seasoned from 20 to 113 months. The underlying mortgage loans are secured by the borrowers’ interests in 651 multifamily and commercial properties located in 28 states and the District of Columbia.
KBRA assigned preliminary ratings to the trust, dubbed Velocity Commercial Capital 2014-1. The trust will offer eight tranches that have been rated from AAA’ to B’.
Citigroup and Nomura Securities are the initial purchasers and structuring agent on the deal.
KBRA noted in the presale report that CLOs backed by small balance commercial assets have historically exhibited higher delinquency rates relative to CMBS conduits. These smaller balance loans, at default, also tend to incur resolution expenses that are a higher percentage of the underlying collateral value than larger assets.
For example, two prior CRE CLOs that Velocity Commercial Capital participated in, VCC 2011-01 and C-Bass 2006-SC1, experienced high delinquency rates. VCC 2011-01 currently has less than 1.0% realized losses and a 60+ day delinquency rate of 7.0% of current balance but at one point on the deal’s history, 26.4% of the initial pool balance was 60+ day delinquent, according to KBRA. In C- Bass 2006-SC1, 16.6% of the pool balance is currently 60+ days delinquent, and the pool has experienced realized losses equivalent to 12.9% of its initial pool balance.