Ladder Capital Provides $68M CMBS Refi on Massachusetts Rental Complex [Updated]
Ladder Capital has provided $67.5 million in commercial mortgage-backed securities (CMBS) debt to developer MG2 Group to refinance The Grid, a five-building mixed-use apartment complex located in downtown Worcester, Mass., according to ratings agency analysis of the transaction.
The 10-year loan pays interest at a rate of 3.8 percent, and the proceeds took out $60.3 million of existing debt and returned $5.6 million in cash to the sponsor, funded upfront reserves and paid closing costs, according to information from Fitch Ratings, which analyzed the deal.
The property was appraised by Ladder on March 1 at $99.8 million, as per Fitch data, setting the underwritten loan-to-value at a rather conservative 67.4 percent. The loan was originated on March 11, just as the pandemic was setting in, according to Fitch.
A $52.5 million piece of the loan is being securitized in the $731 million, Wells Fargo-led WFCM 2020-C56 CMBS deal while the remaining $15 million note will be included in future securitizations.
The site’s five buildings were constructed in the early-to-mid 1900s and have undergone various renovations, according to MG2 Group. The property features a 446-unit rental property that was last renovated in 2017, as per Fitch and information from MG2, and it includes 58,572 square feet of retail space and a 216-spot parking garage. It is currently 98.5 percent occupied.
Boston-based MG2 compiled the collection of properties from 2004 to 2014 for a combined $19.8 million and have deployed more than $57.0 million to improve the assets, as per Fitch. MG2 has spent over $8 million in the last three years on repositioning efforts.
The repositioning included the naming of each of the five mixed-use buildings that are collateral in this transaction — they’re called Bancroft, Portland, Franklin, Park Plaza and Portside.
The Bancroft building houses most of the properties amenities and was the subject of a complete lobby renovation that also included the addition of a business center and a fitness center. The site also features a lounge with a fireplace and on-site laundry facilities.
When Fitch toured the asset in March, only one commercial unit was vacant (most of the other retail and commercial tenants occupying the retail space weren’t open because of the pandemic).
A majority of the commercial rentable space is occupied by tenants who are affiliated with the sponsor, according to Fitch; those include food and beverage offerings in Pie & Pint, Craft, The Brew on The Grid and Beer Garden. They occupy 34,370 square feet of the commercial space, which represents about 59 percent. The four outlets — which are on new 15-year leases through 2035 — combined accounted for about $3.5 million in sales in 2019.
Other tenants include human services non-profit Brockton Area Multi-Services, which makes up 8.1 percent of the commercial space, as per Fitch. There’s also a Santander Bank branch at the property on a lease that started in October 2019.
Due to COVID-19, every retail tenant at the property is closed, and three of those retail tenants didn’t make their April rent payment. The four sponsor-affiliated food and beverage tenants met their April and May rents; they make up 65.4 percent of all commercial rent collection.
The multifamily section of the mixed-use asset is still moving along, although since early March occupancy has dipped from 97 percent to 91 percent as of April 24. Just over 90 percent of residential rents have been collected and 24 tenants have asked for rent relief for April and May.
Excluding commercial rent collections, the residential portion sports a 1.50x debt service, as per Fitch data.
The sponsor covered its mortgage payments in April and May and the loan isn’t in a position for any stress-induced modification or forbearance.
Ladder Capital is a publicly-traded leveraged lender who’s taken some lumps as a result of COVID-19, laboring under the weight of call downs on its securities. It saw its stock (NYSE: LADR) fall from $18.76 on Feb. 20 to $7.95 at market close on May 29, a 57.6 percent drop. Earlier this month, it took a hit when analysts made sizable cuts across the board to its 2020 estimates, including revenue and earnings per share.
This story has been updated to include additional information from MG2 about the property itself as well as the financing.