American Finance Trust pulled off the refinancing of a portfolio of retail-heavy leases when real estate investors were seemingly shunning credit risks exposed to a pandemic that would decimate malls and bricks-and-mortar stores.
“Selling US$715m of CMBS was a question mark. Selling US$715m of CMBS that was 55% retail was a very big question mark,” said Michael Dryden, global head of securitised products finance at Credit Suisse.
As it happens the US$715m deal, CSMC 2020-NET, in July marked a turning point for a market that was seeing very little to no retail exposure in CMBS deals and paved the way for banks to arrange for single-asset, single-borrower transactions backed by retail properties.
Of the 368 single-tenant net-leased properties in 41 states and the District of Columbia, 54.3% were extended to retail tenants; 29.2% to industrial renters and 16.5% to office tenants.
“At that point in time, there were a lot of states that didn’t have retail open other than essential-type operators and obviously from a collection standpoint, there were lots of tenants who were not paying rent, not able or not willing to pay due to various concerns,” said Matthew Masso, Credit Suisse’s head of commercial real estate finance.
Posing, perhaps, an even greater challenge for American Finance was that two of three banks that had pledged to underwrite the loan dropped out, leaving Credit Suisse as the lone bank to arrange the entire financing. The real estate investment trust needed to come up with funding to repay a US$498.9m loan backed by these leases that was due in September.
With the CMBS market slowly reopening, Credit Suisse persuaded investors to take a chance on the tenants, many of which are investment grade, to make their rents.
With American Finance putting up US$11m in equity, the bank rounded up ample orders so the spreads on the offered tranches came in 5bp–15bp inside guidance.
“We believe this transaction de-risked our portfolio, while giving us flexibility in the future to broaden our capital structure,” said American Finance’s chief executive Michael Weil after the deal.
The deal covered 28% of the REIT’s debt, extending its average maturity from 3.5 years to 5.1 years, while the new loan’s interest rate of 3.74% was more than half a point lower than the 4.36% on the previous one.
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