DBRS Assigns Provisional Ratings to STWD 2013-FV1 Mortgage Trust

DBRS has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-FV1 (the Certificates), to be issued by STWD 2013-FV1 Mortgage Trust. The trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X at AAA (sf)

All classes have been privately placed pursuant to Rule 144A.

The Class X balance is notional. DBRS ratings on interest-only certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the interest-only certificate’s position within the transaction payment waterfall when determining the appropriate rating.

The $200 million trust asset represents a senior A-note that is part of a larger $285 million whole loan. The $85 million subordinate B-note will be held outside the trust by both of the trust asset sellers. The loan is secured by the fee and leasehold interests in 123 limited-service hotels located throughout the United States. Although all hotels are branded with the Red Roof Inn (RRI) flag, the brand itself is not collateral. In 2007, the Red Roof Inn Company was acquired by Citigroup Global Special Situations Group and Westbridge Hospitality Fund LP for $1.3 billion through financing comprised of three loan pools. Pools two and three, which represent approximately 45% of the overall portfolio by property count, defaulted in May 2009 and September 2009, respectively. In December 2011, through negotiating deed-in-lieu agreements, the sponsor acquired defaulted loan pools two and three from C-III Asset Management and the Federal Reserve for $408.9 million, representing 58% of par. The sponsor is comprised of a joint venture between Five Mile Capital Partners (Five Mile, 95%) and Westmont Hospitality Group (Westmont, 5%). Westmont was an owner in a similar capacity when the prior loans defaulted.

The transaction for pools two and three was financed by Fortress Credit Corporation (FCC) with a $275 million loan, with the $185 million senior A-note being acquired by Starwood Property Trust and the $90 million subordinate B-note retained by FCC. This loan, secured by properties from pools two and three only, which was scheduled to mature in September 2013, has been modified. Key terms of the modification include an extension of the maturity date to August 2015 (with three additional one-year extension options resulting in an extended final maturity date of August 2018) and an upsizing of the loan amount from its July 2013 balance of $239.6 million (reduced by amortization and properties being sold) up to $285 million.

The A-note trust asset is low leverage, with high DBRS Refi DSCR of 1.70 times and high DBRS Debt Yield of 18.5%. Also, the loan documents prohibit the borrower from incurring additional debt. The loan also benefits from strong institutional sponsorship from Five Mile and Westmont. Five Mile has significant financial resources, with over $2 billion of assets under management, while Westmont brings significant hospitality expertise as it has ownership interests in over 500 hotels. There is significant cash equity behind both the A-note trust asset and the whole mortgage loan. The loan benefits from geographic diversity as well as diversity based on each property’s contribution to total value. The collateral properties are located in 29 states, with only properties in Pennsylvania and Illinois representing more than 10% of the allocated loan amount. In addition, the largest ten properties by allocated loan amount represent only 27.5% of the balance, and only one property is larger than 5%.

While, the collateral is comprised of low budget/economy style limited service hotels that are 28 years of age on average, the sponsor is currently executing a significant capital plan totaling $68.2 million (approximately $4,700 per key). Site inspections revealed that the quality of the renovated hotels far surpass that of the non-renovated properties, and overall property quality for the properties that are not planned to be sold will be strong for the sector upon completion of all the planned renovations.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

Notes:
All figures are in U.S. dollars unless otherwise noted.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is CMBS Rating Methodology (January 2012), which can be found on our website under Methodologies.