Velocity Commercial Capital, a small-balance commercial real estate lender, is behind the latest securitization of single-family rental properties, according to Kroll Bond Rating Agency.
Although the $312 million VCC 2015-1 is mostly backed by residential single and one-to-four rental homes, it doesn't look like a typical single-family rental securitization. The deal is backed by two distinct loan groupings: subpool 1 consists of 706 residential loans and subpool 2 consists of 237 commercial loans.
Velocity pools individual loans that are each secured by a single rental property. By comparison, most other deals offering exposure to this asset class are collateralized by a single loan that in turn is backed by thousands of single-family rental properties, typically concentrated in a few metropolitan statistical areas.
In VCC 2015-1, single-family rentals represent 74.4% of the residential bucket, the rest of the loans are secured by two- to-four-family rental properties.
The commercial bucket is largely comprised of multifamily, mixed use and industrial/warehouse properties. The commercial properties also include some retail and office assets.
Kroll assigned a preliminary AAA rating to the transaction's senior notes, which benefit from 32.5% subordination.
Nomura Securities International, Citigroup, Barclays and Guggenheim Securities are the initial purchasers.
VCC originates loans with balances that range from $100,000 to $5,000,000. This transaction pools loans that have an average balance of $331,739. Kroll notes in its presale report that these kinds of assets "have historically exhibited higher delinquency rates relative to CMBS."
The pool has a weighted average appraisal loan-to-value ratio of 60.5%, which is relatively low compared with recent commercial and residential mortgage securitizations, which have LTVs in the mid 60% to 70% range. However, the assets underlying recent RMBS and CMBS are generally of higher quality, and are also likely to exhibit more stable credit performance, according to the presale report.
The loans are fully amortizing over periods of up to 30 years; 99.9% pay an adjustable interest rate. The rates for most of the loans (903, 95.1%) are fixed for the first 36 months of the loan term. After the fixed-rate period, all of the adjustable-rate loans require rate resets every six months.
VCC has been ramping up loan origination from $78 million in 2013 to $300 million in 2014, a 156.4% increase. The issuer is projecting $500 million in volume for 2015. As of May 2015, it had originated 3,084 small-balance commercial real estate loans and acquired another 233 with total principal balances of $1.2 billion.
VCC last tapped the securitization market with VCC 2014-1, a $191.8 million deal that bundled 631 small-balance loans with an average balance of $303,962. The deal, which offered a similar mix of properties, closed on September 26, 2014.