Single-asset single-borrower (SASB) loans are very big loans made by very big lenders to very big businesses. Because of the role they play in greasing the wheels of commerce and in the lives of those who invest there, it’s worth taking a Millionacres moment to learn a bit about them.
An SASB loan at its simplest is exactly what the name says. It’s a single loan made to a single borrower and collateralized by a single property that then is securitized and sold on the secondary market as an investment to those buyers.
Many sticks in one bundle
SASB loans are typically for $200 million to a billion or more and they’re often bundled together for the secondary commercial mortgage-backed securities (CMBS) market. Plus, a single borrower may involve more than one property in the deal, and more than one borrower and lender can be involved.
That flexibility has made SASB loans a popular way for major operators of commercial real estate (CRE) to finance very high-end properties.
For example, CMBS.loans reports that Brookfield Management Group received a $1.2 billion SASB loan from Citibank and Goldman Sachs to refinance the iconic Bahamas-based Atlantis Resort and Casino In July 2018. And, a few months earlier, in April 2018, Blackstone Group Real Estate Partners received a $382 million SASB loan from Morgan Stanley and Wells Fargo.
Major-league financing for major-league properties
While putting all your eggs in one basket is not typical investment advice, SASBs are not your typical loan. They’re used by highly rated borrowers to get funding from major lenders for high-end properties. Their credit ratings and loan-to-value (LTV) ratios show that, according to this blog from the capital markets advisors at Multifamily.loans:
“(SASB) deals may have lower LTVs than other types of CMBS loans, as LTVs and the credit ratings for loans have an inverse relationship. For instance, AAA-rated securities for multifamily properties would need to have an LTV of no more than 50%, while they could have up to a 92% LTV (unlikely to occur, in practical terms) in order to achieve a B credit rating.”
That fastidiousness in underwriting also shows in SASB performance. A study by Kroll Bond Rating Agency (KBRA) found only six out of 421 such loans defaulted in 25 years. Five of those were secured by hotel collateral, KBRA says, and that was from 1993 to 2018.
The Millionacres bottom line
The hospitality industry, of course, along with retail — especially malls — are being particularly hard hit by the pandemic. That could make it harder for the major operators in that space to access SASB financing, according to Fitch Ratings. The effect on the typical individual investor in CRE may well be felt there most.
That’s because SASB loans are a matter of high finance, taking place at dollar levels well above the province of the average individual investor. SASB loans are an important vehicle for CRE activity at the corporate level, and their use and performance provide yet another indicator on how the overall CRE market is doing, including among publicly held REITs.