Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor March 2019

Monthly Commentary

Twenty three loans totaling $391MM became newly delinquent in March which increased the CMBS 2.0 delinquency rate to 0.82%. The special servicing (SS) rate increased to 1.53% with nineteen loans totaling $277MM newly transferred to SS.

One notable delinquency was the $23.3MM San Fernando Value Square loan (2.34% WFCM 2016-C35). The loan is secured by the fee simple interest in an 118,611 SF retail property located in San Fernando, CA. The asset is anchored by Sam’s Club and shadow anchored by Home Depot. Sam’s Club, the largest tenant (116,911 SF, 81.6% of Net Rentable Area), has their lease expiring on 11/1/2026 but the tenant vacated the property on 1/26/2018. The departure of Sam’s Club has resulted in physical occupancy at the property being reduced from 100% to 18%. Despite the low physical occupancy number, the loan remains current on monthly payments in accordance with cash management mechanics. The loan will continue to be monitored for borrower cooperation and re-tenanting efforts by the sponsor.

One loan was liquidated in March, the $9.5MM DoubleTree Pittsburgh Airport (COMM 2013-CR8). The loan was collateralized by a 135 unit full service hotel located just north of the Pittsburgh International Airport. The property was built in 1962 and renovated in 2005. At origination, the loan was underwritten to a Net Operating Income (NOI) of $1.7MM. Throughout the life of the loan, NOI experienced a steady decline due to reduced convention related bookings at the property and increased competition from other hotels. Post foreclosure, the property was listed for sale through a receiver. The asset was liquidated and resulted in a loss to the trust of $1.8MM (19% loss severity).

In new issue CMBS, twelve private label deals ($7.1BN) priced, including four conduit deals ($3.6BN) and eight single asset/single borrower (SASB) deals ($3.5BN). Two of the four conduit transactions utilized a vertical risk retention structure while one deal used a horizontal structure and another used an L-shaped structure. The conduit AAA LCFs priced at weighted average spread of swaps + 90 bps.

The largest SASB transaction was a $503MM 2yr floater with five 1yr extension options collateralized by the fee simple interest in a portfolio of 18 temperature controlled warehouse and distribution facilities located across Arkansas, Iowa, Ohio, North Carolina, Minnesota, Missouri and Virginia. The loan proceeds were used to finance the sponsor’s acquisition of five properties through a merger with a third party entity and refinance a portion of the borrower’s existing portfolio of assets.

2019 private label issuance across conduit/SASB totals $16BN across 28 transactions year to date.

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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