Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor March 2018

Monthly Commentary

The CMBS 2.0 delinquency rate and special servicing rate increased modestly during the month, to 0.45% and 0.93%, respectively.

One of the largest loans to become newly delinquent is $147MM 175 West Jackson (12.9% COMM 2013-12), secured by a 1.4MM square foot (SF) Class A office property in Chicago, constructed in 1912 and most recently renovated in 2001. Property occupancy declined from 92% at issuance to 83% most recently, and following the end of the interest-only period, the debt service coverage ratio (DSCR) of the mortgage dropped to 0.96x, well below the underwritten 1.82x. Despite declining net operating income (NOI) preceding the property’s refinance, down - 17% between 2011-2013, the underwritten NOI assumed a +9% increase from the previous fiscal year. Rather than increase, NOI continued to deteriorate after origination, with the most recent full-year NOI -30% lower than underwriting (-23% lower than 2013). The sponsor listed the property for sale in late 2017.

One of the largest loans to newly enter special servicing is $26MM Susquehanna Valley Mall (3.4% COMM 2012-LC4), secured by a 628K SF regional mall in Selinsgrove, PA, constructed in 1977 and most recently renovated in 1998. The mall’s performance suffered after losing an anchor department store in 2015; the mall lost a second department store anchor earlier this year. Current occupancy stands at 81%, down from 95% at issuance, with NOI -35% lower than underwriting, resulting in a current DSCR of 1.17x (underwritten at 1.94x).

In new issue, ten private label deals ($9.2BN) priced during the month, including six conduits ($4.8BN) and four Single Asset Single Borrower (SASB) transactions ($4.5BN). Conduit LCF AAAs started the month pricing at swaps +76-78bps, before widening to swaps +92bps for the last print. All four of the SASB deals issued were floating-rate. Three deals – secured by office, hotel and office/lab – carried an initial term of two years and priced at 80-90 DM on the AAAs. The fourth SASB was secured by a strip retail portfolio and carried an initial three-year term, with the AAAs pricing at 110 DM.

2018 private label issuance ended the first quarter +66% higher year-over-year, driven by a +221% increase in SASB volume, compared to +13% for conduit. Annualized issuance projects $75BN in new issue volume for 2018.

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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