Commercial Mortgage Market Monitor September 2016

Fixed Income Commentary


In legacy CMBS, the denominator effect continued to drive the 30+ delinquency rate higher, ending the month at 13.9%. One of the largest legacy loans to become delinquent was $30.15MM LG Portfolio (1.5% JPMCC 2007-CB19), secured by a portfolio of nine mixed-use properties totaling 243K SF, located across various states. Seven of the nine properties are single-tenant, while the other two properties have only two tenants. The portfolio is currently 61% occupied (vs. 100% at underwriting), with the higher vacancy resulting in a net operating income 25.5% lower than underwriting and a loan debt service coverage ratio of 0.68x. The defaulted loan has six months until its April 2017 balloon maturity.

The legacy refinance success rate for 2016 stands at 70%, down from 78% in 2015, reflecting a trend of adverse selection in the outstanding pool of legacy loans, as many of the strongest credits have already refinanced and/or defeased. One of the largest loans to mature without paying off was $165.6MM CA Headquarters (22.8% GSMS 2006-GG8), an interest only loan secured by a 778K SF single-tenant suburban office property in Islandia, New York. According to the special servicer commentary, the borrower has been unable to secure long term refinancing due to the single-tenant risk, CA Technologies, with a lease expiration in 2021. The commentary notes that the borrower is in negotiations with the special servicer to obtain a long enough maturity extension to resolve the rollover risk and secure refinancing.

In CMBS 2.0, delinquencies remained muted at 0.24%, with a number of defaults indicative of more idiosyncratic risk. One of the largest loans to become newly delinquent was $49.16MM Hudson Valley Mall (17.7% CFCRE 2011-C1), secured by a 765K SF enclosed super-regional mall in Kingston, NY. The super-regional mall was originally anchored by Macy’s, Sears, JC Penney, and Target, and reported $275 PSF sales productivity for in-line tenants. The loan has been in special servicing since April 2015, when JC Penney gave notice of its intent to vacate its 68K SF space. Additionally, Macy’s closed its 120K SF store at the property earlier this year. Performance at the mall has not recovered from the heavy lease rollover and co-tenancy clauses resulting from declining sales and dark anchors. Per the servicer commentary, the borrower entered into a settlement agreement with the lender and the property was transferred to receiver for sale.

In new issue, September was the most active month year-to-date, with a total of $8.1BN pricing across ten private-label deals, bringing the year-to-date issuance volume to $43.1BN across 61 deals. Six conduit deals priced, totaling $5.9BN, with benchmark ten-year LCF AAA’s clearing at swaps +106-117bps (swaps +128bps year-to-date average) and BBB-‘s at swaps +520-630bps (swaps + 652bps year-to-date average). Conduit credit quality deteriorated slightly during the month, with higher loan-to-value ratios (+200bps to 58.2%) and lower net operating income debt yields (-50bps to 11.4%). However, 2016 vintage credit metrics remain stronger than 2015, with loan-to-value ratios an average of -450bps lower, at 60.3% 2016 vs. 64.5% 2015, and net operating income debt yields an average of +60bps higher, at 11.21% vs. 10.60% 2015. In single asset single borrower (SASB), out of the four deals totaling $2.2BN that priced during the month, the only ten-year fixed-rate was $857MM JPMCC 2016-NINE (refinancing $625MM COMM 2012-9W57), with the AAA’s clearing at swaps +117bps. The interest-only mortgage is secured by a 50-story office tower located at 9 West 57th Street in the Plaza District submarket of Manhattan; the debt was sized to a 14.5% underwritten net operating income debt yield and 35.3% loan-to-value ratio.

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