Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor May 2018

Monthly Commentary

The CMBS 2.0 delinquency rate and special servicing rate remained relatively flat in May, at 0.43% and 0.98%, respectively.

One of the largest loans to become newly delinquent was $32MM Monarch 815 at East Tennessee State (2.7% COMM 2015-CR25), secured by a 576-bed Class A student housing complex located walking-distance from East Tennessee State University. The property was developed by the sponsor between 2014-2015 at a cost of $37.1MM. Despite the property’s limited performance history, the sponsor was able to execute a cash-out refinance with 10-year CMBS debt that included a property appraisal at 120% of cost ($44.5MM). As of year-end 2017, the property was 65% occupied and the loan carried a debt service coverage ratio (DSCR) of 0.45x.

The two highest severities during the month came from liquidations of 2014-construction multi-family properties located in the Bakken Shale region of North Dakota. $10.3MM Custer Crossing (COMM 2014-CR15), secured by a 108-unit apartment building in Dickinson, ND, was liquidated at a 57% severity. Meanwhile $4.4MM Pheasant Ridge II Apartments, secured by a 42-unit apartment building in Waterford City, ND, was liquidated at a 59% severity. Both properties experienced significant declines in occupancy within 12-months of loan closing as falling oil prices triggered a pullback in local production.

In new issue CMBS, ten private label deals priced ($5.7BN), including four conduits ($3.4BN) and six Single Asset Single Borrower (SASB) transactions ($2.3BN). Two of the conduits used horizontal risk-retention structures with both LCF AAAs pricing at swaps +90bps. The other two conduits included a vertical risk-retention structure and an L-shaped risk retention structure, with the LCF AAAs pricing at swaps +77bps and swaps +82bps, respectively. One of the SASB transactions was 10-year fixed-rate, secured by three multi-family properties located in NYC and San Francisco, with the AAAs pricing at swaps +90bps.

Year-to-date private-label issuance totals $28.8BN across 46 deals, +24% higher than year-to-date 2017, but annualized issuance volume ($69MM) remains 20% lower than full-year 2017.

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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