Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor July 2019

Monthly Commentary

Thirty loans totaling $245MM became newly delinquent in July which increased the CMBS 2.0 delinquency rate to 0.75%. The special servicing (SS) rate decreased slightly to 1.32% with twenty two loans totaling $221MM newly transferred to SS.

One notable delinquency was the $12.7MM 1401/1405/1621 Holdings loan (1.24% COMM 2014-LC17). The loan is secured by the fee simple interest in a 103,225 square foot office facility located in Allentown, PA that was built in 1980 and most recently renovated in 2014. At the time of origination, 41% of the rentable area was leased by a single tenant, CH Hospital of Allentown, LLC. Previous full year occupancy and the debt service coverage ratio came in at 63% and 1.10x, respectfully, compared to 73% and 1.36x at the time of loan origination. The drop in occupancy and the debt service coverage ratio is concerning and it was reported that the borrower has engaged an advisory firm to discuss a restructuring plan that may affect the borrower’s ability to cover the debt service payments going forward. Most recent servicer commentary states that the loan is expected to default imminently.

One large loss severity in July resulted from the liquidation of the $44.8MM Towne West Square Mall (MSC 2011-C2). The loan was secured by a 444,692 square foot retail center located in Wichita, KS. The property was built in 2018 and most recently renovated in 1993. At the time of loan origination, the asset was appraised at $81MM, 81% occupied, and Sears Brands was the largest tenant occupying 27.35% of the rentable space. Occupancy dropped meaningfully to 53% after the expiration of the Sears lease in April of 2015. Subsequently, asset performance declined and the asset was transferred over to a special servicer. In December 2018, the special servicer received an updated appraisal valuing the collateral for the loan at $15.9MM which resulted in an appraisal reduction amount of 68%. The property was recently sold and resulted in a $33MM loss to the trust (73.8% loss severity).

In new issue CMBS, five private label deals ($3.7BN) priced including three conduit deals ($3.2BN) and two single asset/single borrower (SASB) deals ($0.5BN). The conduit transactions utilized L-shaped, horizontal, and vertical risk retention structures. The conduit AAA LCFs priced at a weighted average spread of swaps + 84 bps.

The largest SASB transaction was a $278MM 5yr fixed rate deal collateralized by the borrower’s fee simple interest in a self-storage portfolio consisting of 49 individual properties. The AAA class priced at a spread of swaps + 80 bps.

2019 private label issuance across conduit/SASB totals $41.6BN across 66 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