JP Morgan Provides $434M CMBS Package to Refi Huge Industrial Portfolio

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Elad Genesis LP, an affiliate entity of El-Ad Group, has landed a $434 million debt package from J.P. Morgan Chase to refinance a nearly 6.1-million-square-foot portfolio of industrial and office buildings previously under the umbrella of now-delisted Canadian real estate investment trust Agellan Commercial REIT, according to ratings agency analysis of the transaction. 

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The five-year, interest-only  commercial mortgage-backed securities (CMBS) loan package will pay interest at a rate of 4.63 percent, according to Fitch Ratings. The CMBS portion included a $231 million senior loan, together with a $172 million B-note; separately, it includes a $31 million mezzanine portion. These proceeds, along with $2.2 million in equity from the sponsor, retired around $418.6 million of debt, covered existing “landlord obligations” and reserves for capital expenditures, a three-month debt service reserve and closing costs on the 46-property portfolio deal. The loan closed on July 15. 

Of the $231 million senior portion, $75 million will be securitized in the $895.2 million, Deutsche Bank-led BMARK 2020-B18 CMBS transaction. 

Fitch expects the remaining $156 million in A-notes to be included in future conduit deals, while the $172 million B-note has been included in this subject trust as rake bonds not pooled into the conduit, the lowest tranche of which has been rated “B-.”

With Elad’s $2.2 million equity portion in this deal, Fitch reported that it now has a $114.3 million cash position, which, at a cost basis of $550.4 million, means its equity accounts for just over 21 percent of total funding. The portfolio was appraised from mid-February to mid-March at a valuation of $551 million.

Of the 46 assets, just four are offices, three of which each comprise over 101,000 square feet and are located in Houston’s central business district; the fourth is a roughly 482,500-square-foot suburban office building in Naperville, Ill. The other 42 properties are a mix of flex industrial and warehouse and distribution facilities located across nine states. The largest of the collection is the roughly 906,500-square-foot logistics facility called the Sarasota Distribution Hub in Sarasota, Fla, as per Fitch. Altogether, there are more than 250 tenants who’ve leased space within the portfolio, including United National Foods, General Motors and Ceva Freight, who are the three largest by net rentable area. 

A few concerns have mounted for this portfolio, including an uncertain office market impacting the four assets in this bundle as well as the fact that almost 61 percent of Fitch-tracked base rents are set to roll during the five-year life of the loan; a combined 40.6 percent of that total to come next year and in 2022, as per Fitch data. The firm noted, though, that the portfolio’s geographic diversity and “granular rent roll [helps] limit idiosyncratic tenant or property risk.” 

J.P. Morgan reported to Fitch that June’s rent collection came in at 96 percent, one basis point lower than the 97 percent rate from April and May, and that the portfolio’s 10 largest tenants have not reported any issues with being able to make rent payments. 

In February 2019, Elad Genesis LP announced the acquisition and buyout of the units of Agellan Commercial REIT, which included its delistment from the Toronto Stock Exchange (TSE: ACR.UN). The REIT’s shares were scooped up at $10.76 per unit. There was a pre-arrangement in November 2018, according to international law firm Torys, which represented Agellan in the arrangement, and the Ontario Superior Court of Justice approved the deal in January last year and it closed a month later.