Kroll Bond Rating Agency Assigns Preliminary Ratings to LSTAR 2017-5

NEW YORK--()--Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to twelve classes of the LSTAR 2017-5 transaction (see ratings list below). LSTAR 2017-5 is a $758.8 million commercial real estate (CRE) multi-borrower transaction collateralized by 29 commercial mortgage loans secured by 32 properties. The transaction sponsor intends to satisfy the US credit risk requirements by purchasing and retaining certificates that represent an ““eligible horizontal residual interest” or “EHRI” in the transaction with a fair value equal to at least 5% of the certificates issued as of the closing date calculated using GAAP. The Class E, F and G certificates will constitute the EHRI and will be retained by the sponsor or its majority owned affiliate in accordance with US risk retention rules.

The properties in the collateral pool are located in 13 states, with four state exposures that individually represent more than 10.0% of the pool balance: California (27.7%), New York (14.3%), North Carolina (12.2%), and Texas (10.9%). The pool has exposure to most of the major property types, including five that each represent more than 10.0% of the pool balance: office (26.5%), lodging (15.6%), multifamily (14.3%), retail (14.1%), and mixed-used (11.5%). The loans have principal balances ranging from $3.2 million to $70.0 million for the largest loan in the pool, Charlotte Plaza (9.2%), a 632,283 sf Class-A office tower located within the downtown CBD in Charlotte, North Carolina. The five largest loans, which also include Torrance Technology Center (8.4%), Hotel Gansevoort (7.9%), Greenwich Financial Center (7.1%), and The Frontier (6.4%), represent 39.0% of the initial pool balance, while the top 10 loans represent 62.7%.

KBRA’s analysis of the transaction incorporated our multi-borrower rating process that begins with our analysts' evaluation of underlying collateral properties' financial and operating performance, which determine KBRA’s estimate of sustainable net cash flow (KNCF) and KBRA value using our CMBS Property Evaluation Methodology. On an aggregate basis, KNCF was 6.8% less than the issuer cash flow. KBRA capitalization rates were applied to each asset’s KNCF to derive values that were, on an aggregate basis, 41.0% less than third party appraisal values. The pool has an in-trust and all-in KLTV of 108.4%. The model deploys rent and occupancy stresses, probability of default regressions, and loss given default calculations to determine losses for each collateral loan, which are then used to assign our credit ratings.

For complete details on the analysis, please see our pre-sale report, LSTAR 2017-5 published today at www.kbra.com. The report includes our KBRA Comparative Analytic Tool (KCAT), an easy to use, Excel based workbook that provides the following information:

  • KBRA Deal Tape – Contains KBRA loan level details for every loan in the pool, and the ability for users to input adjustments to KNCF and KBRA Cap Rates and see the related impact on key deal metrics.
  • KBRA Credit Metrics Comparison Tool – Enables the user to compare the subject transaction to a user-defined transaction comp set. The feature provides many of the fields that are provided in our CMBS Monthly Trend Watch publication.
  • Excel based property cash flow statements for the top 20 loans.

Preliminary Ratings: LSTAR 2017-5

           
Class       Initial Class Balance       Expected KBRA Rating
A-1       $113,800,000       AAA(sf)
A-2       $86,000,000       AAA(sf)
A-3       $77,400,000       AAA(sf)
A-4       $64,400,000       AAA(sf)
A-5       $144,011,000       AAA(sf)
X       $650,643,000*       AAA(sf)
A-S       $90,104,000       AAA(sf)
B       $41,732,000       AA-(sf)
C       $33,196,000       A-(sf)
D       $39,836,000       BBB-(sf)
E**       $16,123,000       BB-(sf)
F**       $15,176,000       B-(sf)
G**       $36,990,227       NR

*

  Notional balance.
** To satisfy the US credit risk retention requirements, the transaction sponsor or a majority owned affiliate is expected to purchase an “eligible horizontal residual interest” consisting of these classes on the closing date .

Representations & Warranties Disclosure

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s asset-level representations, warranties and enforcement mechanisms set forth in the related offering documents when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report entitled CMBS: LSTAR 2017-5 Representations & Warranties Disclosure.

Related publications (available at www.kbra.com):

CMBS: LSTAR 2017-5 Pre-Sale Report
CMBS: U.S. CMBS Multi-Borrower Rating Methodology, published January 4, 2017
CMBS Property Evaluation Methodology, published December 3, 2015
CMBS: Methodology for Rating Interest-Only Certificates in CMBS Transactions, published June 6, 2016

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

Contacts

Analytical Contacts:
Kroll Bond Rating Agency
Ryan Lebrecht, 646-731-2440
rlebrecht@kbra.com
or
Michael Brown, 646-731-2307
mbbrown@kbra.com
or
Robin Regan, 646-731-2358
rregan@kbra.com
or
Alec Abrams, 646-731-2401
aabrams@kbra.com

Contacts

Analytical Contacts:
Kroll Bond Rating Agency
Ryan Lebrecht, 646-731-2440
rlebrecht@kbra.com
or
Michael Brown, 646-731-2307
mbbrown@kbra.com
or
Robin Regan, 646-731-2358
rregan@kbra.com
or
Alec Abrams, 646-731-2401
aabrams@kbra.com