Wells Fargo is marketing what may be the first offering of commercial mortgage bonds to comply with Regulation AB II.
Adopted by the Securities and Exchange Commission, Reg AB II is a bundle of regulations covering the registration, disclosure and reporting for publicly offered asset-backed securities. It took effect last week.
For CMBS, the most significant requirements is the appointment of an asset representations reviewer (ARR) to review representations and warranties on collateral held in the securitization trust. There should also be provisions in transaction documents resolving disputes in the event that loans do not meet reps and warranted and are not repurchased by the loan seller within 180 days.
The ARR for the Wells Fargo Commercial Mortgage Trust 2015-P2 will be Pentalpha Surveillance LLC. Pentalpha will be required to review certain delinquent mortgage loans after a specified delinquency threshold has been exceeded, but only if the required percentage of certificate holders vote to direct such review.
The securitization trust will issue $1 billion of securities backed by 70 loans that are in turn secured by 115 properties. KBRA has assigned preliminary 'AAA' ratings to the super senior notes that benefit from 30% credit enhancement and 'AAA' ratings to the junior/senior notes that benefit from 25.25% credit enhancement.
The largest loan, which comprises 8.8% of the pool, is sized at $88 million and is secured by Rolling Brook Village, a multifamily complex located in Woodbridge, Va.
Also among the top five loans are Empire Mall, Pineapple Hotel portfolio, Adler Portfolio and Harbor Pointe Apartments.
Empire mall is located in Sioux Falls, South Dakota, a tertiary commercial real estate market. However sales at the mall average $471 per square foot, which is above the International Council of Shopping Center's reported average of $330 per square foot for malls in the U.S. plains region.
The Pineapple hotel portfolio consists of three limited service hotels located in Seattle, Wa. The Adler portfolio consists of a 9 building office complex located in Doral, Fl., just 10 miles west of Miami's Central Business District. Harbor Point is a multifamily complex located in Bayonne, New Jersey.
Together the 70 loans in the collateral pool have weighted average loan-to-value ratio, as measured by KBRA, of 103.6%. By comparison, the last 26 CMBS rated by Kroll had average LTVs of 102.5%.
Risk distribution is more even in this pool and there is less of the credit barbelling prevalent in many of the conduits rated by KBRA during the second half of 2015.
For example, WFCM 2015- does not have any exposure to investment grade loans, whereas 20 of the last 26 deals rated by KBRA had exposure to investment grade loans that ranged from 3% of the pool to 15.5% of the pool. These loans have better credit characteristics and lower leverage and can impact the overall leverage in a conduit pool.
However on the deals that have included investment grade loans, KBRA noted an increase in high leverage loans, with LTVs in excess of 100%. WFCM 2015-P2 has lower exposure to high leverage loans 46 loans have LTVs in excess of 100% or 66.2% of the pool relative to the an average 67.9% exposure to these loans in other pool rated by KBRA.