As Banks Cautiously Return to CRE Lending, CMBS Market Poised for Takeoff

$2.67 Billion in Current Deals Viewed as the Beginning of a Spring Flurry

CMBS markets are ramping up for a blast of activity that they haven’t seen since the first half of last year. In the past few days, three new deals totaling $2.67 billion have priced or hit the streets, part of an expected larger volume of spring deals to come.

“The roughly $11 billion of CMBS deals lined up through April puts the market on pace for PPR’s prediction of $35 billion in 2012,” says John O’Callahan, capital market strategist for CoStar Group’s PPR Global. “It appears that investor spreads, represented by the 10-year-average-life, last-pay AAA bonds, have turned a corner in 2012 and have room to tighten further, while the corresponding credit support level has tapered off below 20%, similar to levels back in 2001 and well above the 11.5% low in early 2007.”

“If this period of stability continues, the CMBS market could surprise to the upside in 2012, despite the troubles that still loom for many legacy CMBS loans,” O’Callahan said. For O’Callahan’s full remarks, please see his column CMBS Blasts Out of the 2012 Starting Gate in this week’s full pdf version of CoStar’s Watch List Newsletter.

898,000 SF Empty But 9 W 57th Still Gets Triple A Rating

DBRS finalized its provisional ratings on a new CMBS offering expected to come out this month: COMM 2012-9W57. The 9W57 stands for 9 W. 57th St. in Manhattan, a 1.67 million-square-foot, 50-story Class A office tower built in 1972. DBRS gave both Class A and Class X AAA ratings, despite the property being 53.8% vacant.

But the tower has enough going for it, that DBRS is comfortable in its rating.

The property backing the $625 million CMBS is considered one of the premier office towers in Manhattan because of its location directly south of Central Park, which provides unobstructed views of the Park starting at the 27th floor. It is currently 56.2% occupied as of the January 30, 2012, with rent rolls from 23 office tenants and one retail tenant. The occupancy is very low, in part because Bank of America vacated 40% of the NRA in 2008.

However, 9 W. 57th tenancy is considered strong, as it includes a list of elite hedge funds, investment managers, financial institutions and luxury retailers. With a 2.85x DBRS term DSCR, there is minimal term default risk, especially considering the DSCR figure is based on depressed current performance with no credit given to future leasing, DBRS said.

While DBRS expects occupancy of the asset to improve over the term of the loan, in the event that this does not materialize as a result of market conditions or borrower strategy, the recent and historical sales activity of comparable and even inferior properties in Midtown Manhattan is in excess of the loan’s leverage of $374/square foot, according to the bond rating agency.

Deutsch Bank Prices New CMBS

Deutsch Bank Securities priced the second new multiborrower CMBS deal this week. Pricing for that offering has yet to be publicly announced.

The primary assets of the Deutsch Bank’s COMM 2012-LC4 Commercial Mortgage Pass-Through Certificates are 43 loans secured by 67 commercial properties having an aggregate principal balance of approximately $941.3 million as of the cutoff date. The loans were contributed to the trust by German American Capital Corp., Ladder Capital Finance, and Guggenheim Life and Annuity Co.

Retail properties represent the highest concentration of the pool at 52.8%. Office properties represent 15.2%.

The largest loan in the pool is $99.78 million on Square One Mall, a 928,667-square-foot (541,128-square-foot owned) two-level regional mall in Saugus, MA. The property was originally constructed in 1959, and the total mall is approximately 94.2% leased. Square One Mall features two noncollateral anchors, Sears and Macy’s. The collateral is approximately 90.0% leased and includes a 68,500-square-foot Dick’s Sporting Goods as well as a 60,000-square-foot space leased to Best Buy. The loan, which is being used to refinance existing debt on the property of $83.3 million, is sponsored by Mayflower Realty LLC, which is a joint venture between Simon Property Group (56.4%), The Canadian Pension Plan Investment Board (29.6%), and Teachers Insurance and Annuity Association of America (14%).

The second largest loan is $75 million on Union Square, a 236,215-square-foot multi-level anchored retail center at the southern end of Union Square Park in Manhattan. The property is currently 100% occupied by seven tenants, including a 14-screen Regal Cinemas theater, Best Buy, and Nordstrom Rack. Union Square Retail was constructed in 1999 and renovated in 2009. The loan is being used to pay off an existing $32.75 million mezzanine loan and provide distributions to Related Cos. The loan is sponsored by a joint venture between Related and the State Teachers Retirement System of Ohio (STRSO). Related acquired a 49% interest in the borrower for $68.6 million in March 2008.

The third largest loan is for $67.75 million on a 554490-square-foot portfolio of retail properties in Puerto Rico sponsored by a joint venture between Forge Capital Partners and Sembler Co.

Morgan Stanley Finishes Preparing $1.1 Billion Offering

Morgan Stanley will be going to market with Morgan Stanley Capital I Trust 2012-C4 transaction, a $1.1 billion transaction collateralized by 38 fixed-rate commercial mortgage loans that are secured by 77 properties across 22 U.S. States and Mexico.

The top five loans represent 39.5% of the pool and the top 10 loans represent 62.7%.

The pool is comprised of loans secured by seven property types, with significant exposures in retail (42.3%), lodging (24%), and office (14.4%). The lodging exposure includes a hotel condominium interest that represents 6.8% of the pool. There are 13 properties (15.5%) that are single tenant facilities.

The largest tenant exposure is United HealthCare Services, Inc., which is the sole tenant in an office building in Eden Prairie, MN, that serves as collateral for the tenth largest loan in the pool (2.7%).

The loans were originated by the mortgage loan sellers, Morgan Stanley Mortgage Capital Holdings LLC, and Bank of America, which contributed 69.9% and 30.1% respectively.

The majority of the loans (29 loans, 83.8%) were used to refinance existing debt and the proceeds from eight loans (10.4%) were used to acquire properties. All of the loans are balloon loans, and 32 loans (79.9%) amortize throughout the loan term.

Morgan Stanley funded the largest loan, a $130.0 million first mortgage loan to refinance existing debt on The Shoppes at Buckland Hills, a 1 million-square-foot, two-level regional mall in Manchester, CT. The loan is secured by the borrower’s fee interest in 535,235 square feet of in-line space. The mall, built in 1990 and renovated in 2003, is anchored by Macy’s, Sears, JCPenney and Macy’s Men’s and Home; however the anchors own their stores and are not part of the collateral. The sponsor, General Growth Properties, contributed approximately $25 million of equity in conjunction with the loan, which was used to refinance a $156 million loan on the subject.

Bank of America and Morgan Stanley jointly funded a $100 million first mortgage loan to refinance existing debt on three luxury resort hotels. The loan is secured by fee interests in three properties: The Four Seasons Santa Barbara (The Biltmore in Santa Barbara, CA); Las Ventanas al Paraiso at the southern tip of the Baja peninsula between Cabo San Lucas and San Jose del Cabo, Mexico; and the San Ysidro Ranch in Montecito, CA. In addition to the senior mortgage, The sponsor, Ty Warner Hotels & Resorts procured an $80 million mezzanine loan secured by a pledge of the equity interests in the mortgage loan borrower.

Morgan Stanley funded a $75 million first mortgage loan to refinance existing debt on a 35-story commercial condominium at 50 Central Park South in New York, NY. The building is divided into 15 condominiums: one retail condominium unit on the ground floor, one hotel condominium unit consisting of the basement through 22nd floors, and 13 residential condominium units consisting of the 23rd through 35th floors. The building was constructed in 1928 and fully renovated between 2000 and 2002. The loan is secured by the borrower’s fee interest in the hotel unit which includes a 71% undivided interest in the common elements of the condominium. However, the borrower has leased its fee interest in the hotel for the operation of The Ritz Carlton Hotel. The sponsors of the borrower are Westbrook Partners and Millennium Partners, which the loan proceeds to partially repay an $80.5 million loan.

Source:  CoStar

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