Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor February 2018

Fixed Income Commentary

In February, the CMBS 2.0 delinquency rate and special servicing rate remained relatively flat at 0.41% and 0.87%, respectively.

One of the largest loans to newly enter special servicing was $57.6MM Eagle Ridge Village (5.5% GSMS 2013-GC12), secured by a 648-unit garden military housing complex in Evan Mills, NY. The CMBS debt was used to refinance the property, with 15.0% of the loan proceeds ($9.3MM) distributed to the borrower at closing. Although the property was underwritten at 99% occupancy, actual occupancy was 72% for year-end 2017 and 75% for year-end 2016. The low occupancy resulted in a 43% decline in net operating income (NOI) compared to underwriting, resulting in a debt service coverage ratio of 0.79x. Per the servicer’s commentary, the decline in occupancy is due to increased competition (with over 700 units added to the market since 2014), reduced housing subsidies from the military, and changing levels of deployment and relocation needs of military families.

During the month, three CMBS 2.0 loans ($227MM) realized appraisal reductions, bringing the aggregate balance of loans with appraisal reduction amounts (ARAs) to 0.27%.

One of the largest loans to receive an ARA was $60.3MM Matrix Corporate Center (8.1% MSBAM 2013-C11), secured by a 1MM square foot suburban office property in Danbury, CT. Occupancy at the property suffered when the largest tenant (46% of rent) consolidated its footprint and the second-largest tenant (25% of rent) did not renew its lease at maturity (December 2016). Per the most recent financials (September 2017), the property was only 16% occupied and the DSCR on the loan was 0.15x. The debt matures in six months – with the updated appraisal reflecting a 52% decline in value since origination, resetting the loan-to-value (LTV) ratio to 99%.

In new issue, eleven private label deals ($5.1BN) priced during the month, across two conduits ($2.6BN) and nine Single Asset Single Borrower (SASB) transactions ($2.5BN). The conduit LCF AAAs priced at swaps +70bps and swaps +77bps, wide of January’s multi-year tights of swaps +66bps. In SASB, two ten-year fixed rate deals priced, with the AAAs clearing at swaps +99bps on a single-tenant suburban office property and swaps +90bps on a multi-tenanted NYC office property.

While issuance is off to a stronger start than last year, with SASB issuance +81% higher and conduit issuance +32% higher than year-to-date 2017, annualized issuance is only $60BN, well below last year’s $83.5BN.

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