Velocity Commercial Capital is preparing to come to market with $319.1 million in commercial mortgage-backed securities (CMBS) collateralized by 851 small-balance commercial loans. Borrowers’ fee simple interests in 948 residential rental or other commercial real estate (CRE) properties secure the underlying mortgages.
In Velocity Commercial Capital, 2021-4, one- to four-family investment properties make up 52.9% of the properties in the collateral pool, the largest concentration. Other property types include mixed-use, (11.5%), retail (10.7%), and multifamily (7.6%), according to Kroll Bond Rating Agency.
Velocity, 2021-4 is the largest issuance since 2018, according to data from Finsight.
Initial note purchasers on the deal are Citigroup Global Markets and Barclays Capital, according to Kroll Bond Rating Agency, which plans to rate the notes. Velocity will issue the notes from a modified pro rata structure, using a sequential pay structure as a fallback in the event of a trigger event.
The deal includes a dollar credit enhancement floor that could trigger sequential payments. Once the class A credit enhancement on a dollar basis falls below 10% of the original balance of $31.9 million, the structure will distribute the principal sequentially for the duration of the transaction. ¬The notes have an expected final distribution date of December 2051, KBRA said. Should any loans experience performance issues before the sequential pay trigger, the amount of distributed principal to the senior classes will be increased enough to help them maintain their target balances.
Similar to previous Velocity Commercial Capital deals with a modified pro rata structure, the uses subordination and excess spread that will cover both current and cumulative realized losses, KBRA said.
Fixed-rate loans account for a sizeable majority of the loans, 71.7%, while the rest of the pool, 28.3%, are adjustable rate loans.
In terms of ratings distributions by tranche, Velocity 2021-4 has the highest concentration of class A notes with ‘AAA’ ratings, compared with previous deals, at 32.6%. The distinction is reflected through the other senior classes, which are expected to have ‘AA+’ and ‘A+’ ratings on the M-1 and M-2 ratings, respectively. The concentrations on the M-1 and M-2 notes are 27.2% and 22.4%, respectively, according to KBRA.
