Commercial Mortgage Market Monitor October 2017

Fixed Income Commentary


The legacy CMBS delinquency rate and special servicing rate increased in October to 45.2% and 52.6%, respectively, driven largely by payoffs and liquidations factoring down the outstanding balance of legacy loans (denominator effect). The refinance success rate for loans scheduled to mature in 2017 stands at 67% year-to-date – above projections of 60-65% – though a decline from the 72% success rate in 2016 and 80% average for 2014-2015.

One of the largest legacy liquidations during the month was $60.7MM 777 Scudders Mill Road – Unit 3, (29% BSCMS 2007-PW15), a full-term interest-only loan secured by a 5-story 231,108 square foot (SF) single-tenant suburban office property in Plainsboro, NJ. In 2014, the sole tenant announced its plan to build a 650,000 SF office campus on company-owned land to be completed by year-end 2016 occupancy. By mid- 2015, the loan was placed on watch list due to the tenant’s consolidation efforts and subsequent vacancy risk at the subject property. In March 2016, the loan transferred into special servicing citing imminent default risk given the tenant’s expiration December 2016 and loan’s maturity February 2017. The asset was liquidated at a $46.2MM loss, representing a 76% severity to the trust.

In CMBS 2.0, the delinquency rate dropped 12 bps to 0.47% and the special servicing rate rose 1 bp to 0.86%. Of the six loans ($48.6MM) that newly transferred into special servicing during the month, only one transferred due to Hurricane Harvey damage: $6.4MM Dickinson Shopping Center (0.54% COMM 2013-CR9). The loan is secured by a 106,386 SF anchored retail property located in Dickinson, TX. Per the servicer commentary, the borrower estimated losing over 50% of the property’s tenancy due to termination provisions following casualty that affects 25% or more of the net rentable area (NRA). Furthermore, the flood insurance claim reportedly totaled $1.3MM, which did not cover business interruption or rent loss. The borrower stopped paying debt service this month due to the extensive hurricane damage.

In new issuance, October volume included five conduits ($4.9BN) and five single asset single borrower (SASB) deals ($2.9BN). Reviewing, benchmark pricing, execution on the conduit LCF AAA’s ranged from swaps +76-93bps – with spreads tightening over the course of the month. None of the SASB deals were fixed-rate with ten-year terms; however, two deals were fixed-rate for seven-year terms, with the AAA’s pricing at swaps +85-88bps.

Year-to-date private-label issuance ended the month at $66.3BN (57% conduit and 43% SASB), annualizing to $80BN for full-year 2017. Private-label issuance in 2017 has largely benefited from the increase in SASB deals, up +94% year-over-year, compared to conduit, up +7% year-over-year. So far issuance projections for 2018 are framed lower than annualized 2017 totals, ranging between $60-75BN.

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