Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor July 2018

Monthly Commentary

The CMBS 2.0 delinquency rate increased in July to 0.47% while the special servicing rate increased from 0.98% to 1.14%.

There were 11 loans ($287MM) that became newly delinquent in July. One of the largest loans was $42.9MM Crossroads Office Portfolio (4% COMM 2015-CR26). Crossroads Office Portfolio is secured by a pair of office parks, built in 1984 and 1986, located in Islandia and Hauppauge NY. The two office parks are represented by 395,445 total square feet across 13 buildings that reported an occupancy of 74% as of year-end 2017 versus underwritten occupancy of 85%. Net operating income (NOI) has decreased by 30% to $3.2MM as of year-end 2017 versus underwritten NOI of $4.6MM. The portfolio reported a year-end 2017 NOI debt service coverage ratio (DSCR) of 1.14x compared to a NOI DSCR of 1.61x at underwriting. As of April 2018, the portfolio was appraised at $43.4MM versus the underwritten appraisal of $60MM (- 28%).

Two CMBS loans exhibited material losses in July. $13.7MM Gander Mountain (1.4% WFRBS 2013-C12) and $9.5MM Shaw’s Londonderry (1.4% JPMCC 2011-C5). $9.5MM Shaw’s Londonderry (1.4% JPMCC 2011-C5) represented the higher loss severity of 53%. The loan was secured by a 191,585 sq. ft Shaw’s (32% NRA) grocery anchored retail center located in Londonderry, NH. The property’s largest tenant (41% occupancy) vacated upon the May 2016 lease expiration and the borrower stopped making payments shortly thereafter. The loan was transferred to special servicing by September 2016 and the servicer pursued foreclosure. The property was finally liquidated in June 2018 for $5.6MM, representing a 67% decline in value from the 2011 appraised value of $17MM. The trust benefitted from an incremental $1.1MM of loan reserves, which resulted in $6.7MM net proceeds collected in July and a 53% loss severity.

In new issue CMBS, sixteen private label deals ($8.8BN) priced, including three conduit deals ($3BN) and thirteen single asset/single borrower (SASB) deals ($5.7BN). Each conduit transaction used a different form of risk retention (horizontal, vertical, and L-shaped) structure. The LCF AAAs priced at a weighted average spread of swaps +85bps. The largest SASB transaction was a $1.2BN 2yr floater with five 1yr extension options. The loan proceeds were used to repay existing financing encumbering the Atlantis Paradise Island Resort; a 2,917 room hospitality property on an approximately 171 acre site located on Paradise Island in the Bahamas. The deal utilized a horizontal risk retention structure (1mL+4.5% yield on the HRR class) and the AAA class priced at L+125bps.

Year-to-date private label issuance totals $48.6BN across 79 deals, 19.7% higher than year-to-date 2017. The thirteen SASB deals that priced in July made for the most active month of SASB issuance since 2010. Annualized issuance volume of $83.4BN is now ahead of Wall Street projections of $75BN for 2018.

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