Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to 18 classes of Velocity Commercial Capital 2021-1 (VCC 2021-1) mortgage-backed certificates.
VCC 2021-1 is a $264.5 million securitization collateralized by 672 small balance commercial loans secured by 764 residential rental or commercial real estate (CRE) properties. The pool is comprised of 651 fixed rate mortgages (96.3% of the total pool) and 21 adjustable rate mortgages (3.7%). The loans have an average outstanding principal balance of $393,643 which range from $74,175 (0.03%) to $3.9 million (1.5%). The weighted average appraisal loan-to-value ratio (LTV) and FICO score for the pool are 64.9% and 726, respectively.
The underlying properties are located in or near 117 Core Based Statistical Areas (CBSAs) across 34 states and the District of Columbia. The top-three CBSAs represent 45.3% of the portfolio and include New York-Newark-Jersey City, NY-NJ (24.6%), Los Angeles-Long Beach-Anaheim, CA (10.8%), and Miami-Fort Lauderdale-West Palm Beach, FL (9.9%). The three largest state exposures represent 57.1% of the portfolio and consist of California (22.1%), Florida (17.6%), and New York (17.4%).
KBRA relied on its RMBS, CMBS, and Single-Family Rental (SFR) methodologies to analyze the transaction. In doing so, KBRA divided the pool into three distinct loan groupings, as follows: Sub-pool 1 (332 loans, 44.6% of the total pool balance) is comprised of investor loans secured by a single residential rental property with four or less units. Sub-pool 2 (303 loans, 51.0%) is largely comprised of mixed-use (101 assets, 14.9% of total pool), multifamily properties with five or more units (52 assets, 9.4%), industrial/warehouse (29 assets, 7.5%), retail (42 assets, 7.1%), and office (36 assets, 5.0%) properties. The issuer assigned 24 assets (5.9% of CRE) a property type of commercial condominium, which KBRA reclassified to represent each asset’s respective core use. Sub-pool 3 (37 loans, 4.4%) consists of investor loans secured by portfolios of two or more residential rental properties with four or less units.
The RMBS and aggregated CMBS and SFR portfolio credit model results were combined, on a WA basis, to determine KBRA’s modeled expected losses at each rating category and reflect the quality of the collateral, diligence, and information quality relative to typical RMBS and CMBS transactions. The losses were subsequently incorporated into our cash flow modeling, which was used to evaluate the transaction’s credit enhancement levels in the context of its modified pro rata structure.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
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