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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