News & Analysis

Wells Fargo originates ‘landmark’ risk retention CMBS

Wells Fargo has originated an $871 million CMBS transaction that marks the first such deal to have interest holdings that would fulfill the US risk retention rules coming into effect this December.

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Wells Fargo has originated a ‘landmark’ $871 million CMBS transaction that marks the first deal to have interest holdings that would fulfill the US risk retention rules that become effective this December.

Wells Fargo Commercial Mortgage Trust 2016-BNK1, backed by 30 loans secured by 46 properties, meets the 5 percent “eligible vertical interest” US risk retention requirements, or approximately $43,527,883 in this case, according to Kroll Bond Rating Agency (KBRA).

“While the US risk retention rules may not yet be applicable, the subject transaction is nonetheless a landmark securitization because it will provide the marketplace with a much needed structural example of a vertical risk retention execution,” KBRA stated in a presale report.

Earlier this summer, Wells Fargo teamed up with the conduit sponsors Bank of America and Morgan Stanley to ensure that this deal was fully compliant with risk retention rules, as Real Estate Capital reported.

The new rules, which will impact all CMBS transactions beginning December 24, 2016, are meant to incentivize higher quality loans by exposing originators to the credit risk of their originations.

However, KBRA noted that any benefits associated with the risk retention vertical interest rule “are not, in and of themselves, readily quantifiable” and that the agency “did not make any positive adjustments to its rating analysis that were solely due to the presence of this feature.”

KBRA’s weighted average loan-to-value (LTV) of the transaction was 91.7 percent, which is lower than the average of the last 16 conduit transactions rated by agency. Both KBRA and Fitch Ratings rated the transaction’s five senior classes ‘AAA.’

The largest property type concentration in the pool is office (31.6 percent), followed by retail (26.2 percent), hotel (15.2 percent) and industrial (11.2 percent). The largest loan in the pool is secured by the 262,327 sq ft Shops at Crystals luxury retail center located along the “Strip” in Las Vegas, Nevada.