Commercial Mortgage Market Monitor March 2016

Fixed Income Commentary


The delinquency rate for legacy conduit increased 13bps in March to 9.60%, attributable to the declining balance of legacy conduit outstanding (denominator effect). The dollar volume of first-time delinquent loans totaled $878MM, in line with the six-month moving average, while the amount of loans that were either cured or became less than 60+ days delinquent totaled $543MM, the second largest volume in the past twelve months.

The monthly volume of legacy loan liquidations declined to $609MM, the lowest level since February 2010. The three largest liquidations were all retail assets sold from REO. The largest liquidation was $77.5MM St. Louis Mills (MSC 2007-IQ13), a regional mall located in Hazelwood, MO (St. Louis MSA), which was liquidated at a 100% severity. The second largest liquidation was $51.8MM Ariel Preferred Retail Portfolio (GSMS 2006-GG8), a portfolio of six retail outlets across various states, which was also liquidated at a 100% severity. The third largest liquidation was $27.6MM Glen Burnie Center (BACM 2006-5), a community shopping center in suburban Baltimore, which was liquidated at a 68.2% severity. The overall loss severity on legacy loan liquidations in March was 40%, 10% above the six-month average of 30%. Excluding low-loss severity loans, the average severity was 53%, slightly above the six-month average of 50%.

Legacy defeasance and prepayment-with-penalty activity also declined in March. Defeasance volume totaled $900MM, 40% below the sixmonth average of $1.5BN. Prepayment-with-penalty volume totaled $225MM, 25% below the average monthly volume seen in 2015 ($303MM). Of the $4.6BN legacy conduit loans set to mature in March, 84% paid off successfully, raising the 2016 average payoff success rate to 81%, from 77% in February.

In CMBS 2.0, 17 loans ($152MM) became newly 30+ days delinquent in March, resulting in a 4bps increase in the total delinquency rate to 0.25% (59 loans totaling $586MM UPB). The largest newly 30+ delinquent loan was $18.9MM Chicago Portfolio (UBSC 2011-C1), secured by two office properties and one parking garage in Chicago, IL. Six of the newly delinquent loans are secured by properties located in oil-sensitive regions.

14 CMBS 2.0 loans ($195MM) transferred to special servicing in March, bringing the total to 72 loans ($938MM) for a special servicing rate of 0.41%. Ten of the loans are secured by properties located in oil-sensitive regions, including the largest loan, $27.0MM States Additional Apartments (WFRBS 2014-C22), which consists of three contiguous garden apartment complexes in Dickinson, ND. The property went from being fully occupied (with a waiting list) to 50% occupied and missing debt service payments in less than 18 months. Additionally, two CMBS 2.0 loans realized appraisal reductions, the largest was a $3.48MM appraisal reduction on the $13.95MM Minot Hotel Portfolio (WFRBS 2013-C11), which is secured by two Holiday Inn limited service hotels in Minot, North Dakota (currently in foreclosure).

22 CMBS 2.0 loans ($523MM) paid off in March, bringing the total CMBS 2.0 payoff balance to $7.3BN across 323 loans. Additionally, 16 loans ($341MM) were defeased, bringing the total defeased balance to $4.9BN across 247 loans. The largest defeased loan was the $111.9MM Copper Beech Portfolio (GSMS 2011-GC5), a five-year loan secured by four student housing complexes in various states (June 2016 maturity). The CMBS 2.0 payoff success rate stands at 95%.

In new issue, conduit volume totaled $3.1BN across four deals in March, down 45% from February and 29% from March 2015. Year-to-date issuance totals $11.4BN across thirteen deals, down 13% from the first quarter of 2015. The decline in new issue supply coupled with more conservative underwriting improved new issue execution in the second half of the month (benchmark 10yr LCF AAA’s priced at a wide of sw+173bps early March, tightening to sw+129bps by the end of the month). Although better term execution may encourage increased loan origination and conduit issuance volume, broader market volatility and regulatory constraints are likely to remain headwinds for conduit programs.

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