BAML returns Devonshire Square to CMBS universe in £261m securitisation

By James Wallace - Tuesday, August 07, 2018 14:55

Bank of America Merrill Lynch (BAML) has launched the securitisation of a five-year senior loan backed by the WeWork minority-owned and occupied sprawling Devonshire Square campus in the City of London, in further evidence of the current attractive economics of CMBS over traditional syndication.

This latest transaction, dubbed £261.5m Taurus 2018-2 UK DAC, is BAML’s second of the year and the eighth in Europe this year. The expected capital structure of the Taurus 2018-2 UK DAC is as follows:

Class         Size            Exp Ratings      LTV           WAL           IPT

A                 £213.86m  AAA/AAA           36.25%      4.7 years     3mL+ 110bps

B                 £47.65m    AA-/AA               44.33%      4.7 years   Subject

BAML is understood to have several interested buyers for the class B notes and is no longer marketing those notes. The pricing talk for the class Bs, is thought to be around 140 to 150 basis points over three-month Libor.

The bulk of the investment grade securitisation is comprised of the class As, which BAML expects to close at 110 basis points or lower by 23 August.

This is the third time that Devonshire Square has featured as collateral in CMBS both times by Morgan Stanley: first, pre-crisis in ELoC 26 issued in April 2007; and more recently as a partial loan securitisation, dubbed Deer Funding plc, in 2017. As a result, this is very familiar collateral for CMBS investors.

BAML extended a £275.3m facility - comprised of a £235.3m three-year, interest-only, floating-rate senior loan and a £40m capex loan - which funded in April, with the senior loan priced at 155 basis points over three-month Libor. The loan is structured with two 12-month extension options. The £40m capex facility will be available to the borrower for lender-approved capex over the facility's term to support the capital investment across the estate (mainly towards buildings 8 and 10), according to the S&P presale.

More CMBS deals are expected in the autumn, as investment bank’s look to capitalise on the enduring loan-to-bond pricing spread. One expected deal is dubbed Project Elizabeth, a small ticket UK multi-borrower sponsored by inter alia, Oaktree Capital Management, which is reportedly in the works by Goldman Sachs, a frontrunner in the latest European CMBS revival.

Devonshire Square estate was initially acquired by WeWork from Blackstone for £580m in November 2017. Eastdil Secured was then enlisted to source debt and equity partners.  WeWork retained a 10% stake while TH Real Estate and PFA Ejendomme, Denmark’s largest privately owned insurance company, took 45% each.

Devonshire Square comprises 12 mix-use buildings let to 40 office, retail, leisure, educational and residential tenants over a net lettable area of 639,488 sq ft, generating a total gross revenue of £34.9m, with a weighted-average lease to break (WALTB) of 13.5 years.  Of this total space, 81% is office space, with the remainder predominantly a mix of retail and leisure.

WeWork occupies approximately one-third of the space, and generates 46.5% of the total transaction income, alongside rival serviced office company, Regus, law firm Squire Patton Boggs and IT group Equinix. WeWork was founded in 2010 in response to shifting trends in the workforce and the rise of freelance working. There are 157,000 members across 172 locations and over 10m usable sq ft across 53 cities and 16 countries. In London, this includes 17,000+ members across 19 buildings.

The joint venture owners of Devonshire Square entered into a 20-year agreement with WeWork to operate the WeWork-branded space at Devonshire Square estate under a revenue-share agreement between WeWork and the joint venture owners of the estate.

Of the largest five tenants, only Squire Patton Boggs has a WALTB of two years. As such, there is limited lease rollover and only 25.6% of total income expiring during the extended loan term.

The appraised value of Devonshire Square, prior to securitisation, was £590m, expected to rise to £621m upon completion of refurbishment of buildings 8 and 10 within the estate. The current occupancy of the build campus is 96%.

Mount Street will be the primary servicer and special servicer. Servicer fees are 0.013%, and special servicing fees are 0.125% of the outstanding principal balance of the securitised loan per year.

James Wallace is a freelance consultant and can be reached via Linkedin or email:

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