Commercial Mortgage Market Monitor November 2016

Fixed Income Commentary


The legacy CMBS delinquency rate stood at 17.4% for November, continuing its climb higher as the universe of loans outstanding declines due to paydowns and liquidations. Reviewing liquidation activity, a total of 57 loans with a balance of $711MM were liquidated during the month, with over 80% representing pre-2006 vintages. The average loss severity for the liquidations was 53%, with an average severity of 67% when excluding loans with non-material losses (less than 2.0% severity).

The largest legacy liquidation was $305MM Riverchase Galleria (82.6% BACM 2006-6), an interest-only loan with a 5-year Anticipated Repayment Date (ARD) maturity secured by a 582K square foot retail parcel within a 1.27MM square foot regional mall, owned and operated by General Growth Properties, and located in Hoover, AL. The loan was first transferred to special servicing in June 2010 when the property’s Net Operating Income (NOI) could not cover debt service and the borrower declined to fund required reserves. In February 2012, the borrower received an A/B Hope Note modification, creating a $215MM A-Note (70% balance) and $90MM B-Note/Hope Note (30% balance), with interest paid monthly to the A-note and a new maturity date of February 2017. The loan returned to special servicing in July 2016 due to a capital event notice provided by the borrower, and in November the property was sold, raising $86.7MM in proceeds to retire the A-note and incur a 96% severity to the B-note.

The 2006 vintage balance has now factored down to less than 10% of its original balance, ending the month at $15.8BN compared to $163BN at issuance. The 2007 vintage stands at $91.7BN, though $37.8BN (41%) is currently in an open period. Looking at refinance performance, the November refinance success rate (based on original scheduled maturity dates) was 64%, resulting in a year-to-date average of 71%, down from 79% in 2015.

In CMBS 2.0, the delinquency rate remained modest at 0.33%, with $139MM loans newly delinquent in November, bringing the total 2.0 delinquent balance to $842MM across 88 loans. The 2.0 special servicing rate remained stable at 0.64%, with four loans totaling $67MM newly transferred. 12 loans totaling $132.8MM realized Appraisal Reduction Amounts (ARAs) during the month, bringing the total balance of 2.0 loans with ARAs to $472MM (52 loans), with an aggregate reduction of $181.7MM (38%). 70% of the loans with ARAs are secured by multifamily or lodging properties. Reviewing 2.0 prepayments, 11 loans totaling $231MM paid in full in November, which brings the 2.0 prepayment balance to $11.7BN across 541 loans. 30 loans totaling $439MM were defeased during the month, resulting in a defeased balance of $7.6BN (399 loans), of which $4.6BN remains outstanding (305 loans).

In new issue, November was the busiest month since February 2015, with eight conduit deals ($6.8BN) and seven SASB deals ($4.2BN) pricing ahead of year-end and the December 24th Risk Retention deadline. Conduit issuance increased 78% month-over-month and 10% compared to November 2015, though year-to-date issuance volume ($42.3BN) remains 28% lower than year-to-date 2015. Pricing on benchmark LCF AAA’s averaged swaps +111bps, though execution ranged from swaps +100bps to swaps +120bps, as better execution on allbank and Risk Retention proof-of-concept deals drove tiering.

In SASB, November’s issuance activity represented a 40% increase month-over-month and a 200% increase from November 2015; however, year-to-date issuance ($18.7BN) remains 35% lower than year-to-date 2015. Of the seven SASB deals that priced during the month, only one was a 10yr fixed-rate, $750MM HILT 2016-HHV, secured by fee and leasehold interests in the 2,860-room Hilton Hawaiian Village Waikiki Beach Resort on the Island of Oahu, HI. The interest-only loan carried a 57.2% Loan-To-Value (LTV) ratio, a 2.43x Debt Service Coverage Ratio (DSCR), and a 10.3% Debt Yield; the AAA’s (21.7% LTV, 84.1% Credit Enhancement) priced at swaps +125bps.

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