Wells Fargo’s next offering of commercial mortgage bonds is unusually concentrated in a relatively small number of large loans, though many are high quality properties located in strong markets.
The $637 million Wells Fargo Commercial Mortgage Trust 2017-RB1 is backed by 37 fixed-rate loans secured by 72 commercial and multifamily properties, according to rating agency reports.
Among the primary rating considerations for both DBRS and Fitch Ratings, the largest five and 10 loans total 34.8% and 57.0% of the pool, respectively. The pool is also highly concentrated by property type as the office concentration is 54.1%.
However, eight loans, representing 44.2% of the pool, are located in urban markets, including New York, Los Angeles and San Francisco, which benefit from consistent investor demand and increased liquidity even in times of stress, according to DBRS.
And four of the largest 15 loans, representing 23.1% of the DBRS sample, have favorable property quality.
Fitch takes comfort from the fact that the pool has leverage statistics that are in line with recent multi-borrower transactions it has rated. The debt service coverage ratio, as measured by Fitch, is 1.19x, lower than the YTD 2017 average of 1.24x but similar to the 2016 average of 1.21x.
The pool loan-to-value ratio, as measured by Fitch, is 105% is in line with both the YTD 2017 and 2016 averages of 105.4% and 105.2%, respectively.
Wells contributed 25.9% of the collateral; the rest came from Barclays Bank (30.5%), Société Générale (13.6%) and UBS (30.1%).
As with its previous conduit transaction, completed in February, Wells is keeping its own skin in the game. In order to comply with risk retention rules, it plans to acquire and retain an “eligible vertical interest” of each class of securities to be issues, equal of 5% of the entire deal, or approximately $31.88 million.
Both Fitch and DBRS expect to assign triple-A ratings to both the super senior tranches, benefitting from 30% credit enhancement, as well as a tranche with 23.75% credit enhancement.