Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor January 2019

Monthly Commentary

The CMBS 2.0 delinquency rate increased in January from 0.58% to 0.66%. The special servicing (SS) rate decreased from 1.28% to 1.12% with twelve loans totaling $160MM newly transferred to SS.

There were 30 loans ($670MM) that became newly delinquent in January. One large, notable delinquency/transfer to SS was the $50.3MM Heron Lakes loan (3.81% JPMBB 2014-C26). The loan is secured by the fee simple interest in seven class A/B suburban office buildings located in Houston, Texas.

The collateral for the Heron Lakes loan includes 314,504 square feet of suburban office space across seven buildings that were developed between 2001 and 2008. The buildings are situated across 14.4 acres with frontage along the Sam Houston Parkway which is approximately 13 miles north of the Houston central business district. At the time of loan origination, the assets were 98% occupied by 37 tenants. As of the most recent financial report, the assets were 83% occupied, down 15% since loan origination. Subsequently, the borrower and sponsor (Mohammad Nasr) filed for bankruptcy. Once the bankruptcy filing was reported, the loan immediately became delinquent and transferred to SS.

The largest loan that took a material loss in January was $15.3MM Eagle Ford (COMM 2014-LC17). The loan was collateralized by three limited service hotel properties. The Hampton Inn & Suites – Cotulla, Hampton Inn & Suites – Pleasanton, and La Quinta – Pearsall, were all located in the Eagle Ford formation of South Texas. Asset performance was highly dependent on the oil and gas industry and has declined significantly since the loan was originated in 2014. The properties were liquated and resulted in a loss to the trust of $13.4MM (87% loss severity).

In new issue CMBS, three single asset/single borrower deals ($2.3BN) priced. Two of the transactions were floating rate and utilized a vertical risk retention structure while the other transaction was a five year fixed rate deal and used a horizontal risk retention piece. The floating rate AAAs priced at a weighted average spread of 1mL+111 bps. The AAA tranche on the five year fixed rate deal priced at a spread of swaps+87 bps.

The largest SASB transaction was a $1.1BN 2yr floater with five 1yr extension options collateralized by the leasehold interest in eight life sciences properties located in Cambridge, Massachusetts. The loan proceeds were used by Brookfield Asset Management to complete the acquisition of the life sciences building portfolio in conjunction with their purchase of Forest City Realty Trust.

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This material is for general information purposes only and does not constitute an offer to sell, or a solicitation of an offer to buy, any security. TCW, its officers, directors, employees or clients may have positions in securities or investments mentioned in this publication, which positions may change at any time, without notice. While the information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. The information contained herein may include preliminary information and/or "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented. TCW assumes no duty to update any forward-looking statements or opinions in this document. Any opinions expressed herein are current only as of the time made and are subject to change without notice. Past performance is no guarantee of future results. © 2019 TCW