Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Tuesday, 11 June 2019

CMBS Conduit Loss Severities: Credit Matters

Transactions with greater underwritten loan-to-value ratios generally underperform those with less leverage.

By Catherine Liu, Trepp LLC

GS Mortgage Securities Corp., 2007-GG10, the second-largest CMBS conduit ever issued, with an original balance of $7.6 billion, has reported $1.24 billion in write-offs for an aggregate loss of 16.34 percent.

That's far more in losses than any other conduit.

A significant portion of its losses came from high-profile loans, including the $470 million mortgage against Two California Plaza, a 1.3 million-square-foot office property in downtown Los Angeles, and the $265 million mortgage against 400 Atlantic St., a 527,424-sf office property in Stamford, Conn. The Two California loan suffered a $203.5 million loss, while 400 Atlantic incurred $165.8 million.

50 Worst-Performing CMBS Deals

Trepp ID

Initial Bal.($Mln)

Current Bal. ($Mln)

WA LTV

WAC

WA DY

WA DSCR (NCF)

Cumulative Loss  ($Mln)

Cumulative Loss %

GSMS 2007-GG10

7,562.77

255.19

73.61

5.83

7.96

1.30

1,235.70

16.34

CD 2007-CD4

6,640.32

14.32

66.66

5.72

9.48

1.54

835.32

12.58

MLMT 2007-C1

4,050.22

117.12

73.94

5.85

8.55

1.32

692.92

17.11

GCCFC 2007-GG9

6,611.99

179.76

66.48

5.79

9.23

1.54

674.96

10.26

JPMCC 2007-LD11

5,414.15

263.75

72.38

5.84

8.43

1.34

647.25

11.95

MSC 2007-IQ14

4,904.87

229.62

72.11

5.76

7.89

1.35

635.81

12.96

JPMCC 2006-LDP9

4,854.25

527.91

68.34

5.81

8.96

1.49

589.88

12.15

WBCMT 2007-C30

7,918.25

94.91

70.35

5.86

8.64

1.40

581.12

7.35

CGCMT 2007-C6

4,756.05

134.84

71.98

5.73

8.90

1.41

564.38

11.87

JPMCC 2007-LDPX

5,331.52

470.22

73.25

5.76

8.50

1.40

549.58

10.31

MLCFC 2007-5

4,417.02

115.52

67.46

5.96

9.74

1.44

521.34

11.80

CMLT 2008-LS1

2,345.02

201.42

73.09

6.08

8.89

1.29

502.36

21.42

WBCMT 2007-C32

3,823.85

36.75

71.42

5.77

8.70

1.45

468.07

10.50

CD 2006-CD2

3,109.35

61.85

68.81

5.51

9.40

1.51

462.93

14.89

CD 2006-CD3

3,571.36

467.31

70.07

6.15

9.74

1.40

462.67

12.96

BSCMS 2007-PW15

2,807.10

86.52

68.60

5.78

9.00

1.40

461.87

16.45

LBUBS 2007-C2

3,554.40

62.81

66.72

6.00

9.45

1.43

460.73

12.96

CSMC 2006-C4

4,273.09

24.36

66.95

6.14

9.95

1.43

459.99

10.76

CSMC 2007-C1

3,378.50

202.93

71.34

5.88

8.78

1.35

454.51

13.48

BACM 2007-2

3,172.67

-

70.73

5.74

8.28

1.34

438.23

13.81

GCCFC 2005-GG5

4,295.15

-

72.66

5.39

9.18

1.46

431.94

10.06

CSMC 2007-C5

2,720.81

189.81

70.60

6.17

9.42

1.35

428.98

15.77

GECMC 2007-C1

3,953.47

515.15

73.66

5.82

8.89

1.34

426.40

10.79

JPMCC 2007-CB18

3,904.14

349.31

72.97

5.76

9.09

1.40

424.20

10.87

WBCMT 2007-C33

3,602.12

133.66

71.24

5.93

9.37

1.41

423.95

11.77

LBUBS 2006-C6

3,123.30

112.66

62.84

6.10

9.93

1.45

420.02

13.45

MLCFC 2006-4

4,522.71

51.35

69.98

5.88

8.76

1.34

407.73

9.02

CWCI 2006-C1

2,556.16

54.33

70.33

6.01

9.39

1.41

405.42

14.32

GSMS 2006-GG8

4,242.88

296.12

71.62

6.24

9.06

1.32

403.70

9.51

MLCFC 2007-7

2,787.90

155.26

72.10

5.78

8.79

1.34

403.52

14.51

Remaining 20 Deals

97,017.18

3,556.02

70.73

5.93

9.22

1.39

11,359.30

12.51

                                                                                                                                            Source: Trepp LLC

The CMBS transaction isn't done yet. It still has a balance of $255.2 million and carries $13.6 million of appraisal reduction amounts, or ARAs—a metric that is used to forecast potential losses. Its only remaining class is A-J, which originally was rated AAA by Standard & Poor's and Fitch Ratings and Aaa by Moody's Investors Service. Fitch and Moody's now rate it D and C, respectively.

The deal has seven remaining loans, including a $111.3 million piece of the $278.2 million mortgage against the former Franklin Mills mall in Philadelphia that is now known as Philadelphia Mills. The remaining $166.9 million of debt against that property is held by JPMorgan Chase Commercial Mortgage Securities Corp., 2007-LDP11. The loan was transferred to special servicing in April as it wasn't expected to be paid off by its extended maturity this month. The JPMCC 2007-LP11 transaction has the fifth most losses of any conduit.

The $6.6 billion CD, 2007-CD4, transaction has the second most losses of all conduits. So far, it has seen $835.3 million of write-offs, with three losses—the $136 million loan against the Citadel Mall in Colorado Springs, Colo., the $117 million loan against the Loews Lake Las Vegas in Henderson, Nev., and $225 million Riverton apartment property in New York—contributing $360.3 million.

In terms of loss as a percentage of original balance, the $2.35 billion Banc of America Commercial Mortgage Inc., 2008-LS1, deal so far has been hit with losses totaling 21.42 percent of its balance. Its biggest hit: the $109.5 million loss suffered when the COPT Office Portfolio, which consisted of the 694,016-sf Washington Technology Park I and II office buildings at 15000 and 15010 Conference Center Drive in Chantilly, Va., was liquidated.

The transaction, meanwhile, has an ARA totaling 36.01 percent of its $201.4 million balance, indicating that its overall bond loss could reach a staggering 25 percent of original balance when all its remaining assets are resolved.

CMBS Payoffs by Vintage - Conduits Only

Vintage

Issuance ($Mln)

Disposed Balance ($Mln)

Realized Loss ($Mln)

Total Loss %

1995

645.09

537.15

30.16

5.62

1996

5,476.31

4,605.57

203.72

4.42

1997

20,307.64

16,750.54

582.16

3.48

1998

46,594.70

37,429.50

1,363.81

3.64

1999

36,230.61

30,112.48

1,331.10

4.42

2000

27,707.48

24,266.26

1,384.73

5.71

2001

35,605.31

30,958.13

1,879.12

6.07

2002

35,182.50

30,027.98

1,483.17

4.94

2003

53,882.76

45,582.60

1,481.12

3.25

2004

72,687.09

62,876.74

2,793.64

4.44

2005

134,462.31

119,383.07

8,345.82

6.99

2006

156,147.35

141,882.79

14,832.19

10.45

2007

183,807.77

170,219.68

18,394.47

10.81

2008

10,050.49

9,255.00

1,501.10

16.22

2009

-

-

-

0.00

2010

2,173.30

1,985.98

1.71

0.09

2011

10,053.98

9,363.57

68.72

0.73

2012

5,421.46

5,003.17

40.64

0.81

2013

8,231.41

7,673.31

106.41

1.39

2014

5,032.31

4,785.38

65.47

1.37

2015

630.83

641.57

12.50

1.95

2016

149.11

144.41

7.20

4.99

2017

44.98

43.65

-

0.00

2018

-

-

-

0.00

Total

850,524.76

753,528.53

55,908.98

7.42

                                                                Source: Trepp LLC

While its total losses likely won't reach those levels, JPMorgan Chase Commercial Mortgage Securities Corp., 2007-LDPX, could reach 15 percent or more of losses, as it has an ARA of $335.8 million. It's already suffered $549.6 million of losses, or 10.3 percent of its original $5.33 billion balance. The ARA reflects projected losses from its share of a $678 million modified loan against a portfolio of eight office buildings that's commonly referred to as the Skyline portfolio in the Washington, D.C., suburb of Falls Church, Va. The collateral buildings, totaling 2.6 million sf, are now real estate-owned.

The transaction also includes nine office buildings in Alexandria, Va., commonly referred to as the Lafayette Property Trust portfolio, that had backed a $203.3 million loan.

Since ARA assignments on loans have not been necessarily updated to reflect current values, it is possible that loss estimates for these already weak-performing deals are understated.

The 50 CMBS conduit deals with the largest losses so far have suffered $22.6 billion of losses. That accounts for 41 percent of all conduit write-downs.

Transactions with stronger credit profiles at issuance, exemplified by lower weighted average loan-to-value ratios and higher debt-service coverage ratios and debt yields, typically suffer fewer severe loss totals than deals with weaker credit profiles.

For instance, deals that fall within the 45 percent to 60 percent LTV bracket have an average loss of 1.79 percent, while those in the 70 percent to 72 percent LTV bracket post an average loss of 7.14 percent, demonstrating that losses incrementally increase as underwritten leverage goes up.

                 Weighted Average LTV vs. Total Loss

Cath1

                                                                      Source: Trepp LLC

Similarly, deals with higher DSCR and debt yield levels also tend to have reduced bond losses on average. Conduits securitized with a weighted-average DSCR in the 1.4x to 1.6x range record an average loss of 5.86 percent, with losses in the 2.0x to 2.2x bracket averaging 2.31 percent.

                 Weighted Average DSCR vs. Total Loss

Cath2

                                                                      Source: Trepp LLC

And deals with debt yields of 10 percent to 12 percent had losses that averaged 4.03 percent. Average loss doubles to 8.07 percent for deals with debt yields of 8 percent to 10 percent, and jumps to 10.26 percent for deals in the 6 percent to 8 percent debt yield bracket.

                 Weighted Average Debt Yield vs. Total Loss

Cath3

                                                                      Source: Trepp LLC

The pattern is in line with what we would expect, in that riskier conduit pools with weaker underlying credit characteristics ultimately translate to greater losses to bondholders.

Data also indicates that deals whose collateral pools have a significant concentration of collateral in the top 25 metropolitan statistical areas, or MSAs, have an improved credit makeup, boosted by solid property valuations and market demand. Average losses come in at 7.94 percent on pools that have a 30 percent to 40 percent concentration of assets in the 25 largest MSAs. Deals with an equal to or greater than 80 percent concentration in those markets see an average loss of 3.38 percent.

Meanwhile, average losses suffered by deals with a large exposure to their 15 largest loans follow a bell-curve.

                Top 15 Loan Exposure vs. Total Loss

Cath4 - Copy

                                                                      Source: Trepp LLC

Such deals' performance is largely dependent on a small number of assets, since each carries a proportionally large weight. While this means that those with either very low or high exposures spread broadly from the mean can be skewed towards heavier severities, deals with significant exposure to larger assets have reduced losses in general.

The CMBS conduit deals with the lowest dollar losses to date—excluding those from the CMBS 2.0 universe—each had higher than average debt yields and DSCRs and lower leverage levels. They also had greater property type heterogeneity, exposure to larger loans and the country's top 25 MSAs.

                Top 25 MSA Exposure vs. Total Loss

MSACatherine

                                                                      Source: Trepp LLC

For instance, Morgan Stanley Capital I Inc., 2004-IQ7, which had an original balance of $863 million, has suffered only $2.2 million of losses, or 0.26 percent of its original balance. It had a weighted average LTV of 55.9 percent, DSCR of 2.82x and debt yield of 19.04 percent—unusual numbers in the legacy CMBS era.

Contrast those credit metrics with those of GSMS 2007-GG10, whose LTV was 73.6 percent, DSCR was 1.3x and debt yield was less than 8 percent. Indeed, the weighted average LTV of the 50 conduits with the greatest losses was 70.5 percent. The 50 with the smallest losses had a weighted average LTV of 65 percent.

Comments? E-mail Catherine Liu or call her at (212) 754-1010.





weekly-call-to-action

“The Weekly”

“The Weekly” is Commercial Real Estate Direct’s PDF newsletter, sent to subscribers every Friday morning. With over 100 news stories published on Commercial Real Estate Direct each week, “The Weekly” features the top stories in commercial real estate that industry participants need to know first. “The Weekly” also contains:

  • Breaking mortgage, CMBS, and REIT news

  • Quarterly league tables with rankings of B-piece buyers, book runners, and lenders

  • Industry moves and changes in “The Insider“

Data Digest

 

CMBS DELINQUENCY VOLUME

dqdataFP1

 

CMBS SPECIAL SERVICING VOLUME

sschartfp

Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

cppichart FP

 

 

CMBS 2.0 Spreads

AAAspreads

Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

REITCafe

  • Challenging Retail Environment Weights on REITs
    Mixed economic news is weighing on retail markets, pushing REIT performance down in 2015. This week, the National Retail Federation announced that back-to-school spending is expected to be down 9.3% in 2015. This news came on the heels of a report from the Commerce Department stating that retail sales declined 0.3%...
     
  • US REITs Feeling Effects from Turmoil in Greece and China
    International economic forces have taken center stage this week, affecting both US stock markets and REITs. The crash in the Chinese stock market and ongoing concerns about the future of Greece in the eurozone drove markets down during the first half of the week. REITs fared better than the overall market...

  • What Does Increased Construction Mean for Apartment REITs?
    REITs so far this year have raised $17.1 billion of capital through the sale of unsecured notes, bringing the total raised over the past two and a half years to just more than $75 billion. That’s more than they raised during the previous five years. The massive volume shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark...
shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark against which most REIT’s price their bonds
warehouse-backstage