Commercial Mortgage-Backed Securities Market Monitor

Commercial Mortgage Market Monitor November 2019

Monthly Commentary


The CMBS delinquency rate stayed below .80% in November with limited term defaults thus far in the CMBS 2.0 universe.

As the first CMBS 2.0 maturities start to emerge in 2020, one of the notable loans to transfer into special servicing was the $75MM Greece Ridge Center (JPMCC 2010-C2) loan. The special servicer commentary states ‘at the borrower’s request, for the noteholder to consider allowing an early payoff with a waiver of certain terms’. The asset is owned by smaller sponsor Wilmorite Properties, which specializes in retail assets in the upstate New York area. However, this is not one of their best performing properties, and it will see how much leverage they have to negotiate a discounted payoff with the special servicer. The financials currently list the property as 88% occupied, but doesn’t account for the vacancy of the dark Sears space (8.5% of the NRA) which closed in July 2018.

The other significant upcoming maturity will be the $83MM Burnsville Center (GSMS 2010-C1), a large regional mall outside of Minnesota. The mall’s loan balance has amortized from $83MM at origination to $64.87MM today. Despite the lower leverage, the sponsor (distressed retail sponsor CBL) will likely need to inject a decent amount of capital to reposition the property after losing two tenants Gordmans and Toys’ R’US over the last couple of years. The latest occupancy number is 81%, down from 97% in 2015. CBL has three large retail properties with CMBS debt maturing in 2020, and the market will be looking at the Burnsville Center as a leading indicator in CBL’s ability to refinance its upcoming loan maturities.

Other assets that recently transferred into special servicing include Charlottesville Fashion Square (owned by Washington Prime Group), which had also lost Sears as a major tenant and its pro-forma occupancy was expected to drop below 65% and North Riverside Park Mall, which was an original 5-yr loan and failed to pay off at the balloon date. Similar to Charlottesville Fashion Square, North Riverside Park Mall’s (owned by a local Midwest sponsor) pro-forma occupancy was expected to drop below 80% with the closing of its anchor tenant Carson’s and the sponsor was unable to refinance at maturity.

Away from suburban regional malls, one of the areas of the market that continues to struggle is high-end street retail in New York City. This month, 681 Fifth Avenue (10% of MSC 2016-UB12) lost its largest rent contributor, Tommy Hilfiger (76% of the total base rent), and the sponsor is now looking to sublease their space. Tommy Hilfiger is still paying rent until their lease expires in 2023, but the sublease rent is expected to be a significant discount to the in-place lease. The other notable asset is 494 Broadway in the Soho neighborhood of New York City. Likewise, they lost their top tenant when Pandora Ventures (32% of the NRA) decided not to renew their lease and the current market for ground-floor retail in Soho is significantly lower than the existing tenants’ lease.

In new-issue, the largest SASB transaction to price this month was $1.91BN Bellagio sale-leaseback acquisition by Blackstone from MGM. The structure was a 10-yr fixed rate transaction, atypical from the 2-yr/5yr floating rate structure that Blackstone typically utilizes. Bellagio is the third SASB deal to be backed by a casino in Las Vegas over the last couple of years, following the Cosmopolitan refinance for Blackstone and the secured financing of the Caesars Palace in Las Vegas for the REIT VICI properties.

 

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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