BAML issues initial pricing guidance for €445m ‘The Squaire’ CMBS

Bank of America Merrill Lynch has issued initial pricing guidance for its the €445m five-year TAURUS 2015-2 DEU CMBS, the securitisation of a loan secured by IVG Immobilien’s The Squaire at Frankfurt airport.

The capital structure is as follows:

                            Class Size       Exp. Ratings         LTV            WAL          IPT

  • Class A           €153.0m         AAA/Aaa                    25.0%            4.4      3mE+95 area
  • Class B           €61.2m           AA/Aa2                       35.0%            4.8     3mE+130 area
  • Class C           €61.2m           A/A3                           45.0%            4.8      3mE+175 area
  • Class D           €55.7m           BBB/Baa3                  54.1%             4.8     3mE+225 area
  • Class E           €74.1m           BB-/Ba2                     66.2%            4.8      3mE+400 area
  • Class F           €39.8m          B/B2                            72.7%             4.8     3mE+500 area

Total:             €445.0m

The blended coupon, based on the above initial pricing guidance, is 214 bps before issuer costs. This compared to a margin of 265 bps for the five-year, single loan which constitutes the €445.0m TAURUS 2015-2 DEU transaction.

Excess spread, based on the initial pricing guidance, therefore is 51 basis points before issuer costs. BAML is targeting to price the CMBS for mid this week. 

The loan amortises by 5.0% over its term. Its event of default covenants are triggered at an 80.0% LTV ratio, or a 1.20x debt service coverageratio (DSCR). A 1.30x DSCR would trigger a mandatory cash trap.

The difference between the original balance and the securitised loan is BAML’s 5% retention stake in loan format, less one amortisation payment. BAML has prepared the TAURUS 2015-2 DEU data for the European data warehouse to ensure the transaction is ECB collateral eligible. This is expected to be an ongoing protocol.

BAML originated the €470m term loan in late January to refinance IVG’s Squaire, which subsequently cancelled the troubled investor’s attempted sale trajectory.

TAURUS 2015-2 DEU matures in January 2020 and has a legal final maturity of January 2026. Ratings are expected from Standard & Poor’s and Moody’s.

The property has an appraised value of €644m, according to CBRE, and is multi-used with office accounting for the majority of gross rental income (GRI). GRI split is: office 57%, hotel 34%, retail 3% and other 6%.

BAML will retain on an ongoing basis a material net economic interest of at least 5% of the underlying loan.  BAML has provided a €43m liquidity facility.

The Squaire, a joint project between IVG Immobilien AG and Fraport AG, comprises usable space of 144,785 sqm, containing offices, two hotels, a business and conference centre and an infrastructure tailored to working life, with restaurants, shops, doctors, fitness facilities, a crèche and services from hairdressing to cleaning.

The debt yield is 7.1%, current occupancy is 85.2%, gross rent is €40m and net operating income is €33.4m. According to CBRE, the property has a €4,514 value per sq m. WAULT to expiry 10.3yrs; WAULT to first break 9.5yrs.

IVG approached several potential international buyers last September. In December, three of them were given the opportunity to firm up and revise their initial offers, which were subsequently rejected by IVG.

Moody’s wrote in its pre-sale: “41% of the current passing rent is attributed to tenants with strong covenants, KPMG’s office account for 29% of current passing rent whilst Lufthansa accounts for 13% of passing rent.

“The two hotel’s making up part of the collateral are hotels currently operating under the Hilton brand. Both have reached a high occupancy rate and strong RevPAR levels within in a short timeframe after their opening.

“Whilst the quality of the office accommodation is of a very high standard, the location of the asset is not a traditional prime office location in Frankfurt. The asset will only attract tenants that particularly benefit from the proximity to the airport terminals. A departure of one of the main tenants at lease maturity can pose challenges given the reduced number of tenant seeking space in this specific market.”

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