Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor September 2019

Monthly Commentary


Thirty loans totaling $449MM became newly delinquent in September, which increased the CMBS 2.0 delinquency rate to 0.79%. The special servicing (SS) rate decreased to 1.31% with seventeen loans totaling $197MM newly transferred to SS.

One notable delinquency is the $37.8MM Aspen Heights - Stillwater (3.6% of MSBAM 2014-C16) loan. The loan is secured by the fee simple interest in a 231 unit/792 bed student-housing complex located in Stillwater, OK. The asset was built in 2013 on a 38.5-acre site located 3 miles from the Oklahoma State University campus. At the time of origination, occupancy was at 95% and the net cash flow debt service coverage ratio (NCF DSCR) stood at 1.27x. The financials for the previous full year show that occupancy at the asset has dropped to 73% and the NCF DSCR is reported to be 0.66x. Until recently, the borrower had been funding monthly shortfalls to the debt holders but will no longer fund continued shortfalls. Occupancy continues to struggle and we have been informed that the borrower is looking to hand back the property via deed-in-lieu of foreclosure. Legal counsel has been retained to file for foreclosure and/or receivership, if necessary. The aforementioned situation is a good example of how student housing assets in rural markets with low barriers to entry have the potential to struggle.

The largest loan to take a loss in September was the $36MM One West Fourth Street (5.5% of COMM 2013-CR7) loan. The loan was secured by a 431,000 square foot office building located in Winston-Salem, NC. At the time of loan origination, the property was 84% occupied and the two largest tenants were Wells Fargo (45.87% of net rentable area), and Womble Carlyle Sandridge & Rice (30.56% of net rentable area). Upon expiration of Wells Fargo’s lease in December 2016, the bank notified the borrower that they planned to not renew their lease and vacate the space. Additionally, Womble Carlyle Sandridge & Rice decided to extend their existing lease until 2027 but reduce the square footage that they occupied from 131,847 square feet to 91,597 square feet starting in May 2017. With the largest tenant (Wells Fargo) vacating the building and the second largest tenant (Womble Carlyle Sandridge & Rice) reducing their space, asset performance declined substantially. 2018 financials showed that the occupancy dropped to 30% and the NCF DSCR dropped to 0.13x. Eventually, foreclosure proceedings were initiated and the loan was resolved. After the payment of fees, expenses and advances, the resulting loss to the trust was $9.5MM (26.5% loss severity).

In new issue CMBS, twelve private label deals ($8.3BN) priced including seven conduit deals ($6.8BN) and five single asset/single borrower (SASB) deals ($1.5BN). The conduit AAA LCFs priced at a weighted average spread of swaps + 94 bps.

The largest SASB transaction was a $403MM 7yr fixed rate deal collateralized by the borrower’s fee and leasehold interest in the JW Marriot Phoenix Desert Ridge resort and spa, a full service resort and hotel property located in Phoenix, Arizona. The AAA class priced at a spread of swaps + 105 bps.

2019 private label issuance across conduit/SASB totals $56BN across 87 transactions year to date. Agency CMBS issuance stands at $92.7BN across Freddie K and Fannie DUS 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