Commercial Mortgage Market Monitor November 2017

Fixed Income Commentary

The legacy CMBS delinquency rate increased by 180bps to 47.0% and the special servicing rate increased 160bps to 54.2%, driven largely by payoffs and liquidations factoring down the outstanding balance of legacy loans (denominator effect). Legacy deals now represent only 12.0% of the total conduit balance outstanding.

The largest CMBS 1.0 delinquency during the month was $80MM Bangor Mall (27% MSC 2007-IQ16), secured by a 655,124 square foot (SF) enclosed regional mall in Bangor, Maine. The property was constructed in 1979 and most recently renovated in 1997, with reported in-line sales of $327 per square foot (PSF) as of year-end 2016. At issuance, the mall was anchored by Sears (20%), JC Penney (18%), Dick’s (13%), and Macy’s (non-collateral). Earlier this year, Macy’s closed its 143,000 SF store in Bangor as part of a larger effort to right-size its brick-andmortar platform. In addition to the loss of Macy’s, the upcoming lease maturities of Sears (late 2018) and JC Penney (early 2019) complicated the borrower’s ability to secure financing. The interest-only loan transferred to Special Servicing in August for imminent default and the borrower subsequently defaulted at maturity in October.

In CMBS 2.0, the delinquency rate declined 3bps to 0.44% and the special servicing rate declined 4bps to 0.82% during the month. Reviewing 2.0 losses, one of the larger loans to be resolved during the month was $11MM Radisson Rochester Riverside (1.1% at cut-off JPMBB 2013- C17). The CMBS debt refinanced a 460-key full service Radisson hotel in Rochester, NY. The property experienced a -22% decline in net operating income (NOI) between 2014 and 2015 and the debt service coverage ratio (DSCR) fell below 1.0 during the first half of 2016 (when the borrower stopped reporting financials). The defaulted loan was resolved through a discounted payoff executed in November, which net $6.2MM to the trust (48% loss severity) after $1.6MM (20%) of proceeds were used to cover liquidation expenses.

In new issue conduit, November issuance totaled $5.2BN across six deals – the highest monthly issuance for the year and well above the monthly average of $3.9BN. Year-to-date conduit issuance totals $43.1BN, around +2% above 2016 issuance through November. Benchmark LCF AAA execution ranged between swaps +75-84bps, with the swaps +74bps print representing the tightest LCF AAA print since July 2014.

Single asset single borrower (SASB) issuance totaled $3.7BN across six deals during the month, bringing aggregate issuance to $32.8BN, +75% higher year-over-year. The majority of transactions were hotel-backed floaters, with AAA execution ranging between Libor +80-85bps. One five-year fixed rate hotel SASB priced, with AAA’s clearing at swaps +80bps.

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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. © 2017 TCW