DB issues €175m HARP CMBS backed by Kennedy Wilson, Comer Group and Paddy McKillen & Johnny Ronan multi-family

Deutsche Bank has issued the seven-year €174.98m Irish commercial mortgage-backed securitisation, secured by predominantly Dublin multi-family residential assets owned by Kennedy Wilson, the Comer Group and Paddy McKillen and Johnny Ronan.

The new issuance, named DECO 2015-HARP, is the first CMBS in Ireland since 2006. The capital structure is as follows:

  CLASS                SIZE               Debt Yield         LTV              WAL

  • Class A           €90.0m           18.0%               32.3%             3.8
  • Class B           €55.0m            11.2%                52.1%              5.1
  • Class C           €17.5m             10.0%               58.3%             5.8
  • Class D           €12.5m            9.3%                 62.8%             5.8

Total                   €174.98m

The three loans within DECO 2015-HARP is aggregate are secured by 18 properties with a portfolio valuation of €279.7m, including an 86% concentration by value in Dublin.  

The weighted average remaining loan term is 4.6 years, while the weighted average lease term is 5.8 years to first break and 9.3 years to expiry.

The DECO 2015-HARP loans are as follows:

Shamrock: a €87.6m loan to Comer Group for the refinancing of a 12-strong portfolio acquired in December 2013 for a 12-strong Dublin multi-family portfolio and an additional four-strong portfolio of residential assets in Dublin, Galway and Cork acquired in September 2014.

The portfolio was valued by CBRE in August 2014, ahead of the second transaction, at €148.7m, reflecting a gross yield of 8.1% and an LTV of 58.9%.

The five largest assets in the portfolio – Tallaght Cross East, Orchard Gardens, Falcons View, Island Key (2,3,6) and Milners Square – E – account for 76% of the entire portfolio’s value, or €113.1m.  All of which are in Dublin, except for Orchard Gardens in Cork.

By portfolio value, 72.7% of assets are located in Dublin, a further 4.4% in Greater Dublin, 8.0% in Galway and 14.9% in Cork.  The sector split is 90% to 10%, residential and retail, respectively.

The 1.12m sq ft portfolio is comprised of 942 residential units, primarily let to private residential tenants, 63 retail units and 29 commercial tenants. Gross rental income is €12.0m and net operating income is €9.25m. Occupancy as a proportion of estimated rental value is 83.3%. Comer Property Management provides the property management.

Deutsche Bank priced the Shamrock Loan at 405 basis points over three-month EURIBOR. The LTV covenant is 70% and the DSCR is a minimum of 1.45 times income.

New York: a €47.45m senior financing for Kennedy Wilson Europe Real Estate’s (KWE) acquisition for the 275 apartments and 38,374 sq ft retail space across Block F and C of Vantage East and Central, respectively, in Central Park, Dublin 18.

The original KWE transaction included Block K, a partially-built development site with planning permission for 166 residential units.  This is no longer part of the loan, reducing the portfolio value for the New York Loan to €73m, reflecting a 65% LTV.  DTZ valued the assets in March 2014.

The total GRI from the Central Park building is €4,573,657; of which the residential rent comprises €4,475,280 (€16,274 per unit). The overall occupancy is 82.6% (92.7% residential occupancy).

Deutsche Bank priced the New York Loan at 275 bps over three-month EURIBOR. Covenants comprise 75% LTV and a minimum DSCR of 1.25 times income.

Boland: a €39.9m senior loan to refinance Paddy McKillen and Johnny Ronan’s acquisition of Treasury Building in Dublin 2, the headquarters of NAMA and the National Treasury Management Agency (NTMA).

Ronan acquired his loans back from NAMA last summer at par, which included a legacy facility secured by Treasury Building, which Deutsche Bank subsequently refinanced with the €39.9m senior loan, based on a DTZ valuation of €58.0m in January 2015, reflecting a 68.8% LTV.

Deutsche Bank priced the Boland Loan at 300 bps over three-month EURIBOR.

NAMA’s occupancy reflects €1.6m of Treasury Building’s total €5.5m gross rental income (GRI), while NTMA occupancy accounts for a further €3.0m and Elan Management reflects a €819,879.

Across DECO 2015 – HARP, the weighted average loan margin is 346 basis points. Originally the transaction was expected to be larger but Deutsche Bank removed a loan, the reason for which is not yet clear.

Standard & Poor’s and Moody’s Investor Services are expected to rate the transaction which will mark the latter rating agency’s first post-crisis deal in Europe.  Situs Asset Management has been appointed primary and special servicer.

Since the implementation of the European Central Bank’s Asset Backed Securities Purchase Programme (ABSPP), part of the central bank’s wider programme of quantitative easing to combat economic stagnation, spreads on certain euro-denominated ABS have tightened.

Dutch RMBS, the closest comparable to the CRE bucketed multi-family market, has tightened 20 bps in the last 2.5 months, driven by the ECB’s purchasing programme which in turn continues to push yield-hungry investors up the risk curve.  

The favourable emerging dynamics is enhanced further by an enduring lack of new ABS issuance at the broader market level.

More specifically in lending markets, another new entrant in Irish commercial property lending emerged yesterday with MetLife’s announcement of the closure of its maiden deal in Dublin, financing one of the DECO 2015 – HARP sponsors, Kennedy Wilson.

The two loans, through MetLife Real Estate Investors, are for €131m and are secured by Kennedy Wilson’s The Alliance, Sandford Lodge and Clancy Quay over separate five-year floating and 10-year fixed rate facilities.

MetLife is thought to have priced the loans in the low 200s basis points range, underscoring the tightening credit spreads for prime assets in Dublin. 

By way of further evidence, last week CoStar News reported that Starwood Property is deliberating over a number of five-year duration term sheets from overseas lenders for its €350m acquisition of Lone Star’s Dublin office portfolio, indicatively priced at 200 bps.

Deutsche Bank, lead manager and sole bookrunner, is targeting the closure of DECO 2015 – HARP by mid-April.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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