Investors are stepping up their use of commercial mortgage securities, grabbing bonds that tend to have lower default rates.
Affiliates of Brookfield Asset Management are turning again to the commercial mortgage securities market to refinance properties it acquired in real estate investment trust mergers last year.
It will be the sixth commercial mortgage-backed securities refinancing this year for Brookfield or its affiliates, now totaling $3.3 billion and already matching its total for all of last year.
As the commercial mortgage bond market has seen in the past couple of years, there is a shift toward single-asset or single-borrower deals. Single-borrower bond offerings have become popular with investors for a variety of reasons, such as they can involve higher-quality borrowers with higher-quality assets. As such, the bonds historically have lower default rates.
In addition, single-borrower deals have a higher-percentage number of loans with loan-to-value ratios greater than 60 percent – an enticement for borrowers. Such deals also offer borrowers longer terms with more extension options.
The latest bond offering, Morgan Stanley Capital I Trust 2019-BPR, is secured by a $310.5 million portion of a $395 million loan refinancing three super regional malls acquired when it purchased the former REIT GGP for $15 billion last August.
Collateral for the deal comprises a 2.6 million-square-foot portion of 3.3 million square feet of retail space. The malls include Lynnhaven Mall (1.19 million square feet) in Virginia Beach, Virginia; Coronado Center (1.08 million square feet) in Albuquerque, New Mexico; and Governor’s Square (1.03 million square feet) in Tallahassee, Florida.
Morgan Stanley Issues $455M Floating-Rate Loan with Flexible Terms
Morgan Stanley Mortgage Capital originated the loan this month. The floating rate loan has an initial two-year term with three, one-year extension options and requires monthly interest-only payments based on one-month Libor, the London Interbank Offered Rate, plus a spread of about 2.38%.
The borrower is a joint venture between Brookfield Property REIT Inc. and the Future Fund. Proceeds from the mortgage loan were used to refinance $461.8 million of existing mortgage debt and return $23.7 million of equity to the sponsors, according to bond presale analysis by Kroll Bond Rating Agency.
Lynnhaven Mall is the standout property of the three malls backing the offering. JCPenney, Macy’s and Dillard’s anchor the mall, however, Dillard's owns its property and is therefore not part of loan collateral. Other major tenants include AMC Theatres, Barnes & Noble, Dave & Buster’s, Dick’s Sporting Goods, Jump Trampoline Park and H&M.
As of January 2019, the collateral portion of the mall was 96.8% leased by about 130 tenants. The property's in-line sales have been steadily increasing over the last four years from $465 per square foot in 2015 to $489 per square foot as of January 2019.