Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor August 2018

Monthly Commentary

September 24, 2018

The CMBS 2.0 delinquency rate increased in August to 0.55% while the special servicing rate remained relatively flat at 1.15%.

There were 15 loans ($186MM) that became newly delinquent in August. One of the largest loans was $25MM Acropolis Gardens (2.9% CSAIL 2017-CX9). Acropolis Gardens is secured by a residential condo unit owned by a co-op housing corporation with 618 units, located in Astoria, New York. The property is comprised of 16 contiguous 5-story apartment buildings built in 1923 and subsequently converted to co-op ownership in 1988. The property has 618 total units of which 21 are rent controlled and 54 are rent stabilized. The loan became delinquent and transferred to special servicing for imminent default after the payment for the A1 note was returned for insufficient funds. In addition to the payment default, there are multiple lawsuits filed by shareholders of the co-op against the borrower and property manager alleging fraud, misapplication of proceeds, and failure to remediate life/safety issues. The same property was previously encumbered by a $19.5MM loan securitized in WFRBS 2013-C15. Shortly after securitization in the 2013 deal, the borrower stopped making interest payments. That loan ultimately paid off in August 2014, resulting in a 1% loss and a yield maintenance penalty of $1.5MM that was about half of the total required amount of $3.2MM.

Two CMBS loans took losses in August. One loan, $4.1MM La Quinta Inn & Suites Floresville (0.5% COMM 2014-LC15) was liquidated at a loss severity of 82.6%. The loan was secured by a 2012 build, 3-story 69-room La Quinta Inn & Suites limited service hotel located in Floresville, TX. The asset was appraised at $7.1MM in November 2013 and the loan was underwritten at 72% occupancy in 2014. The foreclosure occurred in June 2017. The property subsequently sustained minor damage during Hurricane Harvey in August 2017 and the property wasn’t sold until late July 2018 resulting in a loss of $3.3MM.

In new issue CMBS, nine private label deals ($4.6BN) priced, including four conduit deals ($2.9BN) and five single asset/single borrower (SASB) deals ($1.7BN). Each conduit transaction used a horizontal risk retention structure. The LCF AAAs priced at a weighted average spread of swaps +88bps. The one fixed rate SASB transaction was a 10yr, $365MM pass through. The loan proceeds were used to repay existing financing encumbering 101 Park Avenue; a 1.3mm square foot class A office building located in New York, NY. The deal utilized a vertical risk retention structure and the AAA class priced at swaps +87bps.

Year-to-date private label issuance totals $60BN across 99 deals, 25% higher than year-to-date 2017. Annualized issuance volume of $89.8BN is now ahead of Wall Street projections of $75BN for 2018.

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