Glory Days Return for CMBS (At Least for This Week)

Four New Deals Hit the Streets at One Time – It’s been like old times for CMBS dealmakers this week. Four new offerings have hit the street looking to raise $3.24 billion. And just like in the mid 2000s heyday, we’re seeing new players jumping into the arena for the first time, and the return of high loan-to-values, low debt service coverage and interest-only loans.

The largest of the deals (DBUBS 2011-LC2), and one of the largest in the past year, comes from Deutsche Mortgage & Asset Receiving Corp. The trust balance is a whopping $2.144 billion and is backed by loans originated by German American Capital Corp., UBS Real Estate Securities, and Ladder Capital Finance.

All of the loans were originated within the past 12 months. All loans make debt service payments at a fixed rate with a weighted average interest rate of 5.522%. Interest rates range from 4.258% to 6.643%.

The pool consists of 67 loans secured by 132 commercial properties. The largest loan is $219.8 million or 10.3% of the pool balance, and the 10 largest loans represent 56.6% of the pool balance. The average loan size is $32.0 million (1.5% of the pool balance).

Office loans make up 41.5% of the pool; anchored retail, 24.4%; regional malls, 10%; multifamily, 7.7%; and other property types the remainder.

Moody’s Investors Service completed a pre-sale report on the offering listing strengths and concerns, including the following outtakes:


  • Approximately 81% of the pool balance is represented by properties in major markets. Properties situated in major markets tend to exhibit more cash flow and capitalization rate stability over time in contrast to assets in tertiary markets.
  • The pool contains 18 loans (26.2% of the pool balance) that are secured by multiple properties. Such loans benefit from lower levels of cash flow volatility.
  • One loan representing 1.1% of the pool balance is assigned an investment grade credit estimate of Baa2.


  • Ten loans (17.1% of the pool balance) have a Moody’s LTV greater than 100%.
  • Seven loans (6.8% of the pool balance) provide for interest only payments for their entire term and seven loans (18.1%) provide for interest only payments for a portion of their term.
  • Six loans (12.5% of the pool balance) are structured with additional financing in the form of mezzanine loans. Three loans (16.6%) permit future additional unsecured financing.
  • The pool is exposed to office (41.5% of the pool balance) and hotel (8.5%) properties. Moody’s considers office and hotel properties among the more volatile property types in terms of operating performance.

The U.S. Steel Tower in Pittsburgh, PA, backs the largest loan in the pool of $219.8 million. The 2.34 million-square-foot office tower was purchased in April 2011 for $250 million by an investment group headed by Michael Silberberg of New York. As of April 2011, the property was approximately 96.1% leased. Physical occupancy at the property was 92.6% as a portion of square footage is leased, but not yet occupied by University of Pittsburgh Medical Center.

A second CMBS offering (LStar 2011-1) is catching some attention for its stressed LTV and DSC ratios.

Fitch Ratings has issued a presale report on LSTAR Commercial Mortgage Trust 2011-1 commercial mortgage pass-through certificates. The certificates represent the beneficial ownership in the trust, primary assets of which are 150 seasoned loans secured by 152 commercial properties, having an aggregate principal balance of approximately $362.8 million as of the cutoff date. The loans were originated by affiliates of Citibank and acquired by Lone Star Funds during the past nine months.

The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 0.74 times (x) compared with an average Fitch DSCR of 1.24x for conduit transactions rated in 2011; and a Fitch stressed loan-to value (LTV) of 128.9% compared with an average Fitch LTV of 90.2% for conduit transactions rated in 2011.

The transaction has a high level of exposure to multifamily. Multifamily represents 61.6% of the initial pool balance. Of the pool, 7% is categorized as student housing. Lone Star Funds (Lone Star) identified 12 multifamily properties (7.9%) for which rental income is reliant on government-sponsored programs that provide rent subsidies, such as Section 8. Retail, office, and industrial properties comprise 20.2%, 6.9%, and 3% of the pool balance, respectively.

5400 Heritage Tree Lane, a 206-unit multifamily property in Citrus Heights, CA, backs the largest loan in the pool ($16.12 million).

Two other CMBS offerings being priced out in the market are single-loan, single-property deals.

(BAMLL Trust 2011-FSHN) A brand new rating agency has jumped into the CMBS arena issuing a pre-sale report on this deal. Kroll Bond Ratings was established by Jules Kroll to restore trust in credit ratings by establishing new standards for assessing risk and by offering accurate, clear and transparent ratings. It is accountable directly to pension fund and foundation investors that own 40% of the company, a move designed to be a built-in safeguard against conflicts of interest with loan originators.

On June 6, 2011, Bank of America made a $410 million first priority mortgage loan to Fashion Centre Mall LLC, which is controlled by Simon Property Group LP and Institutional Mall Investors LLC. The loan is backed by Fashion Centre at Pentagon City, an 820,869-square-foot super-regional mall built in 1989, anchored by Macy’s and Nordstrom, and in Arlington, VA. The loan has a 10-year term, requires payments of interest-only at a rate of 4.8675% and matures on July 1, 2021. The loan provided refinancing for a $145 million CMBS loan originated in 2001 and securitized in the LBUBS 2001-C7 transaction.

(GS 2011-ROCK MZ) This $320 million offering comes from Goldman Sachs, which originated the mezzanine financing for a pledge of 49% of the indirect equity interests in the entity that owns Rockefeller Center in Midtown Manhattan, and a pledge of 100% equity interests in the entity that owns the fee interest in 600 Fifth Ave., which is also at Rockefeller Center.

The Rockefeller Center component comprises 12 properties (10 buildings) totaling 6.6 million square feet (excluding condominium space) of Class A office, retail, and theater space.

Standard & Poor’s completed a pre-sale report on this deal listing some of the strengths and risks.


  • The sponsors retain substantial equity in the underlying properties with an appraised value of $5.35 billion and total debt of $2.005 billion, for an appraised LTV of 37.5%.
  • The underlying real estate is an institutional quality asset that is one of the most prestigious addresses in the world.
  • The property generates significant tourist traffic from on-site attractions, including the Top of the Rock observation deck, Radio City Music Hall, the skating rink, NBC’s Today Show, and the world-famous Christmas tree, which enhances the desirability of Rockefeller Center’s retail space. Although the Rainbow Room is currently closed, it was formerly one of the top restaurants in Manhattan, and it provides the sponsor with additional opportunities to improve the asset.
  • The property has a diversified rent roll with more than 400 tenants in 10 buildings.
  • The portfolio was 90.8% occupied as of the February 2011 rent roll, as calculated by Standard & Poor’s, and in each of the past six years, occupancy has not fallen below 89.7%.

Risk Considerations:

  • The transaction’s $320 million mezzanine loan is subordinate to $1.685 billion of existing senior debt that was securitized in 2005, including a $1.2 billion first mortgage and a $475 million senior mezzanine loan.
  • The mezzanine loan collateral is secured by pledges of direct and indirect equity interests in entities that own the underlying real estate. In this case, the real estate collateralizes a $1.2 billion first mortgage. In the event of default (EOD) under the first mortgage, the first mortgage lender would likely foreclose on its collateral, leaving the mezzanine borrowers with zero equity in the underlying real estate, which would likely result in a complete loss for the mezzanine lenders.
  • The mezzanine loan and the senior financing are both interest-only through maturity in 2025.
  • The property is relatively older than comparable Class A properties; nine of the 10 buildings were constructed in the 1930s. Furthermore, the property has a high cost of operations resulting from its landmark status and the significant amount of public-use space.

Source:  CoStar


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