Commercial Mortgage Market Monitor August 2017

Fixed Income Commentary


The legacy CMBS delinquency rate and special servicing rate increased again in August, ending the month at 41.1% and 48.9%, respectively, as pay downs and liquidations continue factoring down the outstanding balance of legacy loans (denominator effect). Adjusting for $4.2BN of August pay downs, the legacy balance outstanding totals $45BN, around 14% of the aggregate 1.0/2.0 conduit universe.

One of the largest legacy payoffs during the month was $95MM Lakeside Mall (61% BACM 2007-4), secured by a 1,182,521 square foot super regional mall in a suburb of New Orleans, LA. The interest-only loan was sized to a more conservative 32% loan-to-value (LTV) ratio and reported a healthy debt service coverage ratio (DSCR) of 2.97x before paying in full. At origination, the retail center reported in-line sales productivity of $746 per square foot (PSF) and the latest reported occupancy at the property was 97% (as of March 2017). Performance improved during the loan term, with net operating income (NOI) increasing over +43% between 2007-2016 (granted the growth was largely baked into underwriting assumptions, with the 2016 NOI peak only +6.5% higher than the 2007 underwriting).

In CMBS 2.0, the delinquency rate and special servicing rate increased modestly, to 0.42% and 0.73%, respectively. One of the largest loans to become newly delinquent was $17.7MM World Houston Plaza (1.5% COMM 2014-LC17), secured by a 216,889 square-foot Class A suburban office building in Houston, Texas. The partial interest-only loan was originated at a 67% LTV and reported a 2.06x DSCR as of March 2017, along with a property occupancy rate of 90%. The property’s largest tenant, totaling over 50% of the leased space, was an oilfield service company that vacated their space in May (at lease maturity) as part of a broader corporate consolidation effort. The borrower subsequently stopped making loan payments in May.

Reviewing new issue activity, three conduit deals totaling $2.7BN priced during the month. Execution on benchmark LCF AAA’s ranged between swaps +90-95bps, while execution on BBB-‘s ranged between swaps + 325-360bps. Comparing average year-to-date 2017 conduit new issue pricing to full-year 2016 averages, 2017 LCF AAA’s are 30bps tighter, at swaps + 93bps, than the 2016 average of swaps + 124bps.

Seven single asset single borrower (SASB) deals priced, totaling $3.6BN, including two fixed-rate and five floating-rate deals. The two fixedrate deals were both carried 10-year terms and were secured by office properties, one in NYC (53% LTV) and one Santa Monica, CA (45% LTV). The NYC office AAA’s priced at swaps + 91bps while the Santa Monica office AAA’s priced at swaps +90bps.

Including the $6.3BN that priced in August, year-to-date private-label issuance totals $48.4BN, an increase of +38% year-over-year. Annualizing the pace estimates $73BN of volume for 2017, above the 2016 total of $66BN, but still short of the $92.5BN total in 2015.

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