KBRA's Preliminary Ratings for $752 Million CMBS Transaction

KBRA Announces Preliminary Ratings for Benchmark 2024-V12

KBRA has recently made headlines with the assignment of preliminary ratings to 13 classes of the Benchmark 2024-V12, a significant $752.2 million CMBS conduit transaction. This ambitious undertaking is collateralized by a diverse pool of 31 commercial mortgage loans, which are secured by a total of 164 properties.

Understanding the Collateral Composition

The properties involved in this transaction span an impressive 63 metropolitan statistical areas (MSAs). The three largest MSAs contributing to this pool are New York, Colorado Springs, and Houston, with percentages of 25.4%, 10.0%, and 8.4%, respectively. Interestingly, the transaction showcases a wide array of property types, with multifamily, lodging, and retail properties dominating the landscape. Specifically, multifamily properties account for 27.3% of the pool, lodging properties 25.8%, and retail properties 22.1%. Such diversity in property types not only highlights KBRA's broad market perspective but also serves to mitigate associated risks.

Examining the Loans and Their Significance

The loans backing this transaction have principal amounts that vary widely, from $4.5 million to a substantial $75.0 million for the largest loan, Queens Center. This loan represents 10.0% of the pool balance and pertains to a considerable 412,033 square feet of a super-regional mall located in New York’s borough of Queens, approximately seven miles from Midtown Manhattan. The five largest loans in the pool account for 42.2% of the overall balance. They include notable names such as Cheyenne Mountain Resort, Sunshine MHC Portfolio, Hamburg Pavilion, and Verde Apartments, showcasing a strong focus on strategic investment.

KBRA’s Analytical Approach

KBRA’s robust analysis of the transaction encompassed a comprehensive multi-borrower rating process. This evaluation process begins with a thorough assessment of the underlying collateral properties’ financial and operational performance. The goal is to determine KBRA's estimate of sustainable net cash flow (KNCF) and establish KBRA values using their North American CMBS Property Evaluation Methodology. This rigorous examination reveals that, on an aggregate basis, the KNCF was 9.0% less than the issuer cash flow, indicating a cautious outlook.

Capitalization Rates and Pool Characteristics

One crucial aspect of KBRA’s approach involves applying capitalization rates to each asset’s KNCF, ultimately deriving values that, on an aggregate basis, fell 35.9% short of third-party appraisal values. This conservative stance is further reflected in the pool’s in-trust KLTV of 91.4% and an all-in KLTV of 96.1%. By employing sophisticated modeling techniques including rent and occupancy stresses, probability of default regressions, and loss given default calculations, KBRA aims to accurately determine the potential losses associated with each collateral loan, forming the foundation for their credit ratings.

Access to Ratings and Methodologies

For those seeking to delve deeper into the specifics of the ratings and relevant documents, KBRA provides accessible resources through their official platform. The methodologies underpinning their rating decisions include a range of invaluable reports, which outline key credit considerations, sensitivity analyses, and insights into ESG factors that could impact credit ratings.

About Kroll Bond Rating Agency

Kroll Bond Rating Agency, LLC (KBRA) stands as a full-service credit rating agency with a robust registration with the U.S. Securities and Exchange Commission as an NRSRO. KBRA operates across various international borders, including designations with the European Securities and Markets Authority and the UK Financial Conduct Authority. This recognition underscores KBRA's commitment to maintaining high standards in credit analysis and ratings.

Frequently Asked Questions

What are the preliminary ratings assigned by KBRA?

KBRA assigned preliminary ratings to 13 classes of the Benchmark 2024-V12 CMBS transaction.

How large is the CMBS transaction discussed?

The CMBS transaction is valued at $752.2 million, making it a significant undertaking in the market.

What types of properties are included in the transaction?

The properties include multifamily, lodging, and retail, with varying proportions in the pool.

How does KBRA evaluate the loans involved?

KBRA assesses the financial and operational performance of collateral properties to estimate sustainable cash flow and assign credit ratings.

What is the role of KNCF in KBRA's analysis?

KNCF, or sustainable net cash flow, is a vital metric that influences credit ratings by determining the commercial viability of the loans.

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