Wells Fargo’s latest commercial mortgage trust deal is a higher-leverage gambit of riskier debt-service coverage and loan-to-value ratios, driven by additional subordinate financing carried by some of the pool’s largest borrowers.
The $702 million Wells Fargo Commercial Mortgage Trust 2013-C34 is a securitization of fixed-rate multi-borrower transactions, the second Wells has put together in the last two months through the WCFM platform.
Fitch Ratings has issued early ratings on the 16 of the 20 classes of notes that are topped by a series of super-senior, AAA-rated Class A notes totaling $421 million. The notes are backed by 68 loans secured by a diverse mix of 92 retail, office, medical, hotel, storage, multifamily residential and other properties.
All of the loans were sponsored, sold or originated through Wells, Natixis Real Estate Capital, Rialto Mortgage Finance, Silverpeak Real Estate Finance and Basis Real Estate Capital II.
The super-senior notes include 30% of credit enhancement while the subordinate ‘AAA’-rated structures have 25% CE.
In its presale report, Fitch noted the high leverage that the ratings agency had seen in other recent rated CMBS transactions, with a DSCR of 1.07x below the year-to-date average of 1.17x and 1.18x in 2015 for other deals. The LTV ratio of the underlying property loans is 112.9%, above the average of 107.9% of other deals this year (as well as 2015’s 109.3%).
But those comparisons worsen when Fitch adds in the debt service and loan-to-value levels when considering the subordinated debt already in place for three borrowers that comprise 20.4% of the total pool size.
Two of those borrowers have the largest loans in the pool: Regent Medical Office in New Jersey ($81.5 million in mortgage notes and $10 million in existing mezzanine debt) and the Congressional North Shopping Center & 121 Congress retail/mixed use center based in Rockville, Md. (with $63.3 million in total leverage, including subordinate financing on top of a $58.8 million commercial mortgage).
Including the additional debt to their new mortgages, the total debt service is lowered to 1.04x, and the LTV spikes to 115.2%. Those, too, are bested by other recent CMBS deal average of 1.11x DSCR and 112.0% LTV.
The 10 largest loans in the pool represent 50.2% of the balance, led by retail properties comprise 38% of the pool by balance, far ahead of the average 24.8% of other comparable CMBS deals in 2016. No other property type accounts for more than 16.1% of the pool.