Commercial Mortgage Market Monitor January 2018

Fixed Income Commentary


In January, the legacy CMBS delinquency rate increased by 70bps to 48.3% and the special servicing rate declined 20bps to 54.4% - with the elevated metrics the result of payoffs and liquidations factoring down the outstanding balance of legacy loans (denominator effect). The aggregate overall conduit delinquency rate (legacy and 2.0) decreased 10bps to 4.9% in January, with 92% of the delinquencies from the legacy vintages.

The largest legacy loan to enter special servicing during the month was $111.6MM Central Mall Portfolio (69.7% MSC 2005-IQ9), secured by a portfolio of three Texas malls totaling 1,750,000 square feet. The loan first transferred to special servicing in October 2014 due to imminent (maturity) default, before securing a 12-month maturity extension. Despite two additional extensions (June 2019 maturity), performance continued to decline due to higher vacancies and tenant costs (including rent relief). The most recent net operating income (NOI) for the portfolio is 25% lower than underwriting, resulting in a debt service coverage ratio (DSCR) of 1.09x. The largest legacy liquidation during the month was $48.8MM Maxtor Campus (1.1% CSMC 2006-C4), secured by a 450,000 single-tenant suburban office property in Longmont, CO. The loan first transferred to special servicing in September 2015 after its sole tenant provided notice of non-renewal. By June 2016, the property was vacant and entered foreclosure, remaining in Real Estate Owned (REO) status until liquidation in January at an 87% loss to the trust.

In CMBS 2.0, the delinquency rate increased by 9bps to 0.41% and the special servicing rate increased by 4bps to 0.88%.

The largest CMBS 2.0 loan to enter special servicing was $34.73MM 10333 Richmond (3.2% JPMBB 2014-C22), secured by a 216,680 square foot suburban office property in Houston, TX. The loan transferred to special due to imminent default as a result of cash flow issues, with a current DSCR of 0.78x. Occupancy at the property fell to 67% (underwritten at 94%) as of the most recent financials (3Q.17), with the borrower reporting energy sector uncertainty as the primary reason for the performance decline.

In new issue, nine private label deals ($4.9BN) priced during the month, across two conduits ($2.5BN) and seven Single Asset Single Borrower (SASB) transactions ($2.4BN). Both conduit LCF AAA’s priced at swaps +66bps, the tightest execution since July 2014 (swaps +71bps). In SASB, two five-year fixed rate deals priced, with the AAAs clearing at swaps +55bps on a Jersey City apartment portfolio and at swaps +77bps on a midtown New York City office property.

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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. © 2017 TCW