Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor October 2018

Monthly Commentary

The CMBS 2.0 delinquency rate increased in October from 0.47% to 0.56%. The special servicing (SS) rate increased slightly from 1.12% to 1.16% with fifteen loans totaling $152MM transferring to SS.

There were 15 loans ($186MM) that became newly delinquent in October. One large, notable delinquency was the WPC Department Store Portfolio loan. The WPC Department Store Portfolio serves as collateral for three pari passu notes with an aggregate original balance of $57.17MM. The notes were placed in the following three conduit CMBS transactions; $20.1MM BACM 2015-UBS7 (2.57%), $19.9MM MSC 2015-UBS8 (2.54%), and $17.17MM CSAIL 2015-C3 (1.24%). The portfolio is secured by the fee simple interest in six single-tenant retail properties located across Wisconsin (76.5% of net rentable area), Illinois (12.6% of net rentable area), and North Dakota (10.9% of net rentable area). The portfolio totals approximately 1,002,731 square feet and is 100% leased and occupied by The Bon-Ton Stores. The loan transferred to special servicing on 8/23/2018 for imminent default due to Bon-Ton filing for bankruptcy in February 2018 and became delinquent during the October remittance report.

Three CMBS loans took material losses in October. Two of the three loans were collateralized by assets located in the Bakken Shale region of North Dakota. $17.1MM Strata Estate Suites (2.1% COMM 2013-CR10) was liquidated at a loss severity of 100%. The loan was secured by two multifamily properties that saw net operating income (NOI) decline from $5.5MM at the time of securitization to $300k for full year 2017.

$9.9MM Minot Hotel Portfolio (1% WFRBS 2013-C11) was liquidated at a loss severity of 100%. The Minot portfolio loan was secured by two Holiday Inn hospitality assets in Minot, ND. From securitization in 2013 to the transfer to SS in 2015, NOI decreased by 54%. The loan transferred to SS after the borrower requested a loan extension, modification of the cash management agreement to allow for a seasonality reserve, and a discounted payoff of mezzanine debt. After the borrower refused to fund operating expense shortfalls, a receiver was appointed in February of 2016 to manage the subsequent asset liquidation.

In new issue CMBS, eight private label deals ($6.8BN) priced, including three conduit deals ($2.9BN) and five single asset/single borrower (SASB) deals ($3.9BN). Two of the conduit transactions used an L-shaped risk retention structure while the third deal exhibited a horizontal risk retention structure. The LCF AAAs priced at a weighted average spread of swaps +86 bps which is 6 bps wider versus the September weighted average. The largest SASB transaction was a $2.5BN 2yr floater with three 1yr extension options. The loan proceeds were used by Blackstone to acquire a portfolio of primarily industrial properties. The portfolio represents a subset of Gramercy Property Trust’s industrial real estate assets. On May 6th, 2018, Blackstone announced that it had reached a deal to acquire Gramercy Property Trust. The deal utilized a vertical risk retention structure.

Year-to-date private label issuance totals $77BN across 114 deals, compared to $75BN of private label issuance that priced over the same period in 2017. Annualized private label issuance volume currently stands at $92BN.

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