Nearly half of leases on the 45 retail properties that secure Wells Fargo and Citigroup’s latest large loan CMBS will expire before the loan itself matures.
This creates “tenant rollover risk," associated with the refinancing of debt.
Standard & Poor’s stated in a presale report that of the properties securing the $796-million, four-year loan that backs WFCG Commercial Mortgage Trust 2015-BXRP, 45.5% of the leased net rentable area (NRA) and 56.1% of the in-place rent expire before the extended loan maturity date in 2019.
The years with the highest rollover are 2018 and 2019, during which leases representing a combined 26.2% of the NRA expire (31.6% of in-place rents as calculated by Standard & Poor's).
However, the rating agency notes that the considerable rollover risk is mitigated by the diverse tenancy at the properties, which contain approximately 342 unique tenants, none of which makes up more than 4.4% of the in-place base rent. "Moreover, the loan's structure requires ongoing reserves for the upcoming rollover risk if the debt yield trigger were to be breached," stated the S&P presale report.
Pet Smart, Ross Dress for Less, Hobby Lobby, Dick’s Sporting Goods and Kohl’s represent the top five tenants in the pool. Pet Smart, the largest tenant, occupies approximately 3.8% of net rentable area (NRA) and contributes approximately 4.4% of in-place base rent, as calculated by S&P.
The loan borrowers, Blackstone and DDR Corp. recently acquired the loan collateral for approximately $1.1 billion. The acquisition was part of a bigger portfolio, for which they paid $2 billion in total.
Unlike most other CMBS 3.0 deals rated by S&P, this transaction structure allows the borrowers to post any collateral “that is reasonably acceptable to the lender, aside from cash, U.S. obligations, and completion bonds/letters of credit” towards any major alterations at the properties. “This structure is weaker than in most other transactions, where any security posted to support major alterations either has to be cash or highly rated by Standard & Poor's,” the rating agency stated in the presale.
S&P assigned preliminary AAA’ ratings to $410 million of class A notes, AA- ratings to $88 million of class B notes and A-’ ratings to $62 million of class C notes. The structure is also offering $86.5 million of BBB-’ notes, over two tranches, $118 million of BB- , class F notes and $32 million of B+’ rated, class G notes.