Monday, May 13, 2013

Nerd Fight!

Fitch does not seem to agree with Kroll's rating of a $782.75M, interest-only mortgage that was stuffed into the recent CGCMT 2013-375P deal.  For the uninitiated, Fitch seems to believe that the underwriting assumptions used to finance RFR Realty's acquisition of the Seagram Building is a bit aspirational, to say the least.


"--2010: $53,560,729 (average occupancy of 96.9%);
--2011: $56,745,150 (average occupancy of 96.6%);

--2012: $54,078,388 (average occupancy of 94.4%).

This compares to the issuer's NOI of approximately $74 million and average occupancy assumption of 96.7%."

Citi and Deutsche  underwrote this one with about $20M in pro-forma income.  That is, the banks assumed that the property's earnings would increase ~37% via the following:

"--$10.2 million from the mark to market of rents assuming $135 psf for floors 2-12, $145 psf for floors 13-38 and $125 psf for the retail space;
--$7.8 million from the lease up of vacant space from 90.2% to 96.7%; and

--$2.2 million from a recent re-measurement of the building increasing the total sf to 858,000 sf."

I'm in the middle on this one.  On one hand I'd like to believe that Fitch has a point and is acting prudently but on the other hand, it seems as if they're still trying to make amends for missing some of the market tops that occurred in 2006 and 2007.  Not sure if Fitch is being proactive or reactive.

And then there was this (emphasis added):
Fitch provided preliminary feedback of $510 million at investment grade and was not asked to rate the transaction. 

But despite any butt-hurtness on the part of Fitch, I take a look at KBRA's assumptions and also the mezz jammed into this deal and it does make a Jingle Male wonder:

Right-click and select "View Image"
 So yes, let's see how this one plays out. 

~Jingle Male

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