Rialto Capital, a subsidiary of homebuilder Lennar Corp. (LEN), is coming to market with a new commercial mortgage-backed securitization deal. Or at least, the deal is unlike anything seen in some time.

The deal is a paltry $132 million, rated BBB by both Fitch Ratings and Moody’s Investors Service, but what’s even more notable is this deal is unlike anything seen on the market since the credit crisis began. New trends in CMBS pool highly granular loans with high capitalization rates.

This is different.

Rialto Capital Series 2012-LT1 is a securitization of loans with little to no cash flow. Nearly all the loans are nonperforming, pooled from hotels, offices and retail properties in the Rialto real estate portfolio. Less than 28% still generate money from tenants.

It may sound like a risky investment, but actually these types of securitization were not uncommon 10 years ago.

Because the deals are in liquidation, investors join the fray while the properties are already being wound down. This means payouts come quicker and are forwarded into the secondary market by draining the reserve fund of those properties.

“Unlike traditional CMBS transactions, all collections are aggregated and applied to a single waterfall, and no proceeds will be distributed to the equity holders until the notes have been paid in full,” according to the presale report from Fitch Ratings.

One risk, Moody’s states, is that Rialto can restructure the deals as it deems pertinent, as with a loan being modified into a performing property.

“Loans receiving extensions could then be sold as performing loans or held until maturity,” the ratings agency said, indicating a possible loss to the CMBS investor.



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