A lower Manhattan office building that serves as the headquarters of the New York Department of Financial Services is the largest loan in a $891 million commercial mortgage securitization from UBS.
The transaction, UBS 2017-C7, is backed by a total of 48 loans secured by 109 properties. Retail is the largest exposure, by property types, accounting for 28.2%, followed by retail (25%), and multifamily properties (15.6%).
The $62.2 million One State Street Plaza loan is one of two loans with investment-grade credit opinions; the other is a slice of a larger loan backed by the General Motors Building; together, the two investment-grade loans account for 11.2% of the collateral pool. Together, these two loans help reduce the overall leverage in the deal.
As a result, the overall pool has a weighted average in-trust loan-to-value ratio, as calculated by Kroll Bond Rating Agency (KLTV), of 96.3%. That’s in line with conduits that Kroll has rated so far this year, and compares favorably to the averages for the 2014 to 2016 vintages. Even more encouraging, there’s a smaller than average concentration of loans with KLTVs of above 100% (27 loans, 52.5%). Fitch puts the pool‘s LTV at 100.9%, which is slightly better than the year-to-date average of conduits it has rated of 101.3%.
Another positive is the fact that the pool of loans will also amortize over the life of the deal (absent defaults) by 10.9%. Most commercial mortgages repay the bulk of collateral in a single, balloon payment upon maturity; moreover, many loans pay only interest, and no principal, for at least part of their terms. As a result of this amortization, the deal’s KLTV should fall to 85.4% by maturity. And in general, properties with lower LTVs are easier to refinance upon maturity.
Also notable, according to Kroll, is the relatively low exposure to loans split into notes that rank pari passu, or on equal footing, and are used as collateral in more than one deal. A total of 12 loans (47.2% of the pool) are pari passu, compared with an average of 48.1% of deals rated by Kroll over the past six months. Pari passu loans can complicate loan workouts; Kroll views “properly structured” pari passu loans as credit neutral, however.
One State Street Plaza, an 891,573 square foot, Class-A office building in New York’s Financial District is the largest loan in the collateral pool, at $62,2 million. In addition to the New York Department of Financial Services (28%), the largest tenants include Ambac Assurance Corp. (15.4%) and SourceMedia (11.2%).
The second-largest loan ($60 million) is backed by a portfolio of 12 anchored shopping centers located in eight states. The properties, which were constructed between 1984 and 2014, contain a total of 2.4 million sf and were 90.3% leased to a granular roster of approximately 190 tenants as of November 2017.
The third-largest loan ($59.5 million) is backed by a portfolio of six Class-B garden-style multifamily complexes located in Florida, within the Daytona Beach and Orlando metropolitan statistical areas. The properties range in size from 100 to 343 units and together comprise 1,242 units and were constructed from 1964 to 1984.
Sixteen classes of certificates will be issued, of which 13 classes are entitled to principal and interest, two classes receive interest-only, and one class is a residual interest that will be retained by UBS to comply with risk retention requirements. Both Kroll and Fitch Ratings expect to assign triple-A ratings to the super senior tranches, which benefit from 30% credit enhancement, as well as to a senior tranche with 19% credit enhancement.