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COLORADO REAL ESTATE JOURNAL
— September 21-October 4, 2016
Finance
Holliday Fenoglio Fowler LP
secured a $16.35 million refi-
nancing for Rangeview IV, an
82,381-square-foot, single-tenant
office building in Loveland.
Working on behalf of the bor-
rower, RVAA LLC, an affiliate
of McWhinney, HFF placed the
15-year, fixed-rate loan with Vec-
tra Bank (Zion’s Bancorp). Ear-
lier in the year, HFF worked on
behalf of an affiliate of McWhin-
ney to arrange $25.99 million in
construction financing through
Vectra Bank for the development
of the adjacent property, Ran-
geview V.
Completed in 2010, Rangeview
IV is a Class A office building
located in Centerra, a 3,000-acre
master-planned community at
Interstate 25 and U.S. Highway
34. The building is fully leased
to Agrium Inc., a major distribu-
tor of crop inputs and services
in North America, South Amer-
ica and Australia, and a leading
global producer and marketer of
agricultural nutrients.
The location serves as the
national headquarters for Agri-
um’s U.S. retail operations and
operates as Crop Production
Services. Rangeview IV has easy
access to Interstate 25 and is
within close proximity to the
Fort Collins/Loveland Airport
and Colorado State University,
a leading agricultural school
and a large recruitment base for
Agrium.
The HFF debt placement team
representing the borrower was
led by Senior Managing Director
Eric Tupler and Associate Direc-
tor Brock Yaffe.
“The financing provided by
Vectra was well-structured as a
competitive market interest rate,
fixed via a SWAP for the full term
of the loan, which is commensu-
rate with the term of the lease,
and will enable us to optimize
long-term recurring cash flow at
a very attractive cost of capital,”
said Joshua Kane, vice president
of finance for McWhinney.
s
Rangeview IV serves as the national headquarters for Agrium’s U.S.
retail operations, which operates as Crop Production Services.
C
ommercial mortgage-
backed securities have
long been a source for
high-leverage financing of real
estate assets that did not qualify
for more friendly balance sheet
financing executions. In the lat-
est real estate cycle, CMBS has
become a black sheep lending
source. According to Commer-
cial Mortgage Alert, the first half
of 2016 saw $30.7 billion of total
transaction volume. This repre-
sents an approximate 43 percent
decline in transaction volume
from the first half of 2015. As
borrowers continue to see CMBS
as a last-ditch effort for financ-
ing, it is expected that transac-
tion volumes will continue to
decline.
Further complicating this pro-
cess is the implementation of risk
retention, which is the final act
of the Dodd-Frank Wall Street
Reform and Consumer Protec-
tion Act of 2010. The new rule
will go into effect Dec. 24, and
was designed to discourage reck-
less mortgage-backed security
lending that was a large contrib-
utor to the financial catastrophe
seen in 2008. All conduit trans-
actions sold after Dec. 24, 2016,
must comply with risk retention
regulations. Major CMBS issu-
ers have scrambled to determine
how to implement risk retention
into their programs and how it
will affect the pricing of conduit
deals going forward.
Risk retention requires the
issuer, or major affiliate of the
issuer (B-piece buyer), of CMBS
bonds to hold a 5 percent piece
of the securitization on its bal-
ance sheet for the initial five
years of the bond’s life. There are
two main methods to structure
this risk retention, an “eligible
vertical risk piece” and an “eli-
gible horizontal risk piece.”
Vertical risk piece.
The spon-
sor or issuer of the CMBS trans-
action
is
required to
retain 5 per-
cent of the
face
value
of each class
of securities
issued in the
CMBS trans-
action.
Horizontal
risk piece.
The sponsor
is required
to retain the
most subordi-
nate class or classes of securities
issued in the CMBS transaction
in an amount equal to 5 percent
of all the “fair value” of all the
CMBS transactions issued. This
form of risk retention is more
commonly known as the B-piece
buyer retention option.
Hybrid risk piece.
A final
hybrid structure permits the
sponsor to satisfy the risk reten-
tion requirement by a combina-
tion of horizontal and vertical
retention, knownmore common-
ly as the “L” slice. This provision
would allow CMBS sponsors
to supplement the horizontal
piece by retaining themselves, or
through a B-piece buyer affiliate,
an additional vertical interest to
“top off” the amount by which
the securities retained in the hor-
izontal risk piece falls short of
the required fair market value.
Similar to the vertical risk piece
method, the sponsor would be
required to retain a portion of
the CMBS bond that represents
an interest in each class of the
CMBS, including an interest in
the class or classes retained by
the B-piece buyer.
The legislation further states
that a sponsor cannot retainmore
than its pro rata share (based on
collateral contributed) of the risk
retention obligation, nor may
any originator retain less than
20 percent of
the sponsor’s
risk retention
ob l i ga t i on .
T h e r e f o r e ,
sponsors who
c o n t r i b u t e
less than 20
percent of the
collateral for a
CMBS trans-
action are not
permitted to
retain any of
the required
risk piece. What this means in
the market is that smaller CMBS
originators who contribute to
larger CMBS pools will not be
able to retain any portion of the
required risk piece and will like-
ly see more expensive pricing
from the main book runners in
order to cover the cost of risk
retention. This cost will then be
passed on to the borrower in
the form of wider interest rate
spreads.
In early August, the first con-
duit transaction to comply with
the risk retention regulationswas
priced in the market. The $870.6
million transaction was led by
Wells Fargo, Bank of America
and Morgan Stanley. The three
book runners chose to retain a
vertical risk retention piece total-
ing approximately $43.5 million.
The 10-year AAA tranche priced
at SWAPs+94 basis points, with
the BBB- tranche pricing at
SWAPs+425 basis points. This
pricing presented the tightest
spreads seen in a conduit trans-
action in 2016. Though some
of this favorable pricing was
driven by larger market factors,
including a lack of recent CMBS
supply, this pricing also proves
investors’ confidence in the abil-
ity of major national banks to
navigate risk retention and sup-
Eric Tupler
Senior managing
director, HFF, Debt &
Equity Team, Denver
Tyler Dumon
Real estate analyst,
HFF, Debt & Equity
Team, Denver
FIND FINANCING
I N D U S T R Y D I R E C T O R Y
COMMERCIAL REAL ESTATE
LENDERS
Arbor Commercial
Mortgage, LLC
Bank of America Merrill
Lynch – Commercial
Real Estate
Bank of Colorado
Bank of the West
Berkadia Commercial
Mortgage, LLC
Bloomfield Capital
Partners, LLC
CBRE|Capital Markets
Chase Commercial Term
Lending
Citywide Banks
Colorado Business Bank
Colorado Lending Source
Commerce Bank
Essex Financial Group
Fairview Commercial Lending
FirstBank Holding Company
Front Range Bank
Grandbridge Real Estate
Capital LLC
Hunt Mortgage Group
JCR Capital
JVSC-CBRE Capital Markets
KeyBank N.A., KeyBank Real
Estate Capital
Merchants Mortgage and
Trust Corp.
Midland States Bank
Montegra Capital Resources,
Private Lender
Mutual of Omaha Bank
NorthMarq Capital, Inc.
RNB Lending Group
TABS
TCF Bank
Terrix Financial Corporation
U.S. Bank – Commercial
Real Estate
Vectra Bank Colorado, N.A.
Westerra Credit Union
@
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