KBRA assigns preliminary ratings to nine classes of Velocity Commercial Capital 2023-3 (VCC 2023-3) mortgage-backed certificates.

VCC 2023-3 is a $263.5 million securitization collateralized by 774 small balance commercial loans secured by 909 residential rental or commercial real estate (CRE) properties. The pool is comprised of 660 fixed rate mortgages (89.0% of the total pool) and 114 adjustable-rate mortgages (11.0%). The loans have an average outstanding principal balance of $340,386 and range from $16,588 (<0.1%) to $3.1 million (1.2%). The weighted average appraisal loan-to-value (LTV) ratio and FICO score for the pool are 61.6% and 711, respectively.

The underlying properties are located in or near 178 Core Based Statistical Areas (CBSAs) across 39 states. The top-three CBSAs represent 31.6% of the portfolio and include New York-Newark-Jersey City, NY-NJ (14.0%), Miami-Fort Lauderdale-West Palm Beach, FL (10.1%), and Los Angeles-Long Beach-Anaheim, CA (7.5%). The three largest state exposures represent 45.0% of the portfolio and consist of Florida (18.5%), California (16.2%), and New York (10.3%).

KBRA relied on its RMBS and CMBS methodologies to analyze the transaction. In doing so, KBRA divided the pool into two distinct loan groupings, as follows: Sub-pool 1 (551 loans, 65.9% of the total pool balance) is comprised of investor loans secured by residential rental properties with four or less units. Sub-pool 2 (223 loans, 34.1%) consists of commercial real estate assets. This sub-pool is largely comprised of retail properties (45 assets, 8.0%), industrial (33 assets, 7.6%), mixed-use properties (53 assets, 6.4%), multifamily properties (28 assets, 4.4%), office (25 assets, 3.5%), automotive service properties (24 assets, 2.4%), and commercial condominium (15 assets, 1.7%). KBRA reclassified the mixed-use and commercial condominium property types to each asset’s respective core use, and classified automotive service properties as retail for our analysis.

The RMBS and CMBS 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.

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Related Publications

• U.S. RMBS Rating Methodology
• Residential Mortgage Default and Loss Model
• U.S. CMBS Property Evaluation Methodology
• U.S. CMBS Multi-Borrower Rating Methodology
• Methodology for Rating Interest-Only Certificates in CMBS Transactions
• Global Structured Finance Counterparty Methodology

Disclosures

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.

About KBRA

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. 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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