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Thursday, 07 September 2017

CMBS Credit Picture Keeps Improving; Special Servicing Volume Hits Lowest Level in 8 Years

The credit profile of the CMBS universe continues to improve, as legacy loans - those securitized before 2010 - are worked out or retired, and new loans take their place. The volume of loans in special servicing has declined for a sixth straight month and now amount to 4.29 percent of the entire universe.

Commercial Real Estate Direct Staff Report

The credit profile of the CMBS universe continues to improve, as legacy loans - those securitized before 2010 - are worked out or retired, and new loans take their place.

The delinquency rate, for instance, now stands at 5.43 percent, down from 5.47 percent in July, according to Trepp LLC. And the volume of loans in the hands of special servicers last month fell by a whopping 3.3 percent, to $25.3 billion, according to Morningstar Credit Ratings. That's the biggest drop since January 2016, when the $3 billion loan against Manhattan's Stuyvesant Town/Peter Cooper Village apartment complex was resolved. The last time the special servicing volume was less than $26 billion was 2009.

Volumes in special servicing have declined for six straight months and now amount to 4.29 percent of the $590.8 billion universe tracked by Morningstar. In July, 4.48 percent of the universe was in special servicing.

Loans typically move to special servicing when their risk of default increases sharply. That could result when a large tenant moves out of their collateral or some other issue occurs that causes a drop in cash flow.

Lately, however, most transfers have been the result of doubt about the ability to refinance at maturity. In fact, five of the largest recent transfers all involved loans that had reached their term and were unable to get taken out.

The largest of those is the $167.5 million loan, securitized through COMM, 2014-FL5, against a portfolio of 20 limited-service hotels in Texas, California, Louisiana and Oklahoma owned by an affiliate of what is now Colony NorthStar Inc. The loan also is notable because it's the largest CMBS 2.0 loan to have transferred to special servicing.

Recent Large Transfers to Special Servicing

Property Name

Location

Prop
Type

Deal Name

Bal $mln

Notes/MStar value

Special Servicer

K Hospitality Portfolio

Various

HOT

COMM 2014-FL5

167.50

Maturity default/$159.2mln

Wells Fargo

Marriott Houston Westchase

Houston

HOT

BSCMS 2007-PW18

72.58

Maturity default/$70.9mln

C-III Asset Management

Columbia/Brook Park MHC

Cleveland

MHC

MLMT 2007-C1

55.00

Maturity default/$47.2mln

C-III

Cole Centerpointe

Woodridge, Ill.

RET

WBCMT 2007-C33

29.41

Maturity default/$23.2 mln

Torchlight Investors

Algonquin Center

Algonquin, Ill.

RET

GSMS 2006-GG8

28.60

Maturity default/$25.6mln

C-III

Source: Morningstar Credit Ratings

Net cash flow at the loan's collateral declined to $11 million last year from $20.4 million during the 12 months through June 2014, according to servicer notes compiled by Trepp. Those notes indicate that the cash flow decline was driven by five properties in Texas' oil and gas region. Separately, that same area recently was devastated by flooding stemming from Hurricane Harvey.

The loan initially had matured in August 2016, but was able to be extended for up to three additional years. It was able to exercise its first extension, and Colony NorthStar evidently is trying to exercise its second option. That could be an issue given that the option can only be granted if the loan hasn't defaulted.

Meanwhile, retail loans now dominate the special servicer rolls, accounting for nearly 34 percent of all loans in special servicing. That distinction long had been held by office loans. As of the end of last year, for instance, $10.6 billion of office loans were in special servicing. That accounted for 37 percent of the total volume of loans in special servicing.

Property Type

Loans

Bal $mln

%

Retail

653

8,596.48

33.92

Office

387

8,397.86

33.13

Hotel

130

3,787.87

14.94

Multifamily

109

1,478.60

5.83

Industrial

77

1,114.01

4.40

Healthcare

6

87.69

0.35

Other

96

1,883.14

7.43

Source: Morningstar Credit Ratings

The data show just how active special servicers have been liquidating and otherwise resolving troubled loans. While LNR Partners, C-III Asset Management and CWCapital Asset Management together oversee $21 billion, or 83 percent of all loans in special servicing, their volumes have declined substantially. Their active portfolios have shrunk by 16 percent since the end of last year, while the overall universe of specially serviced loans has declined by just more than 11 percent.

Most Active Special Servicers

August 2017

July 2017

Servicer

#Loans

Bal $mln

MktShr%

Bal $mln

%Chng

LNR Partners Inc.

524

8,279.23

32.67

8,607.87

-3.82

C-III Asset Management

413

7,897.69

31.16

8,474.76

-6.81

CWCapital Asset Management

285

4,796.15

18.92

5,047.75

-4.98

Torchlight Loan Services

48

945.16

3.73

931.29

1.49

Midland Loan Services

61

720.61

2.84

677.83

6.31

Wells Fargo Bank

11

605.43

2.39

421.12

43.77

Rialto Capital Advisors

57

571.06

2.25

495.24

15.31

Situs

29

328.42

1.30

337.99

-2.83

KeyCorp Real Estate Capital Markets

12

229.24

0.90

241.94

-5.25

Strategic Asset Services

3

64.36

0.25

64.44

-0.13

Source: Morningstar Credit Ratings

Of course, not every special servicer has seen a decline in their actively managed portfolios. Wells Fargo Bank, for instance, saw a 44-percent increase. It's the special servicer of the K Hospitality Portfolio loan in COMM, 2014-FL5.

Rialto Capital Advisors, which only handles CMBS 2.0 loans, most recently saw the addition of the $13.5 million loan, securitized through WFRBS Commercial Mortgage Trust, 2013-C16, against the 113-room Holiday Inn & Suites Westway Park in Houston. The property has seen a drop in occupancy and room rate, which has pressured cash flow. In addition, Rialto last month took charge of the $14 million loan, securitized through WFRBS 2013-C12, against the 120,000-square-foot Gander Mountain Store at 100 Gander Way in Palm Beach Gardens, Fla. Gander Mountain had filed for bankruptcy earlier this year and agreed to sell its stores to Camping World. The Palm Beach Gardens site shut its doors last week.

Comments? E-mail Orest Mandzy, or call him at (267) 247-0112, Ext. 211.





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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2016
Investment Bank #Deals Vol$mln MktShr%
JPMorgan Securities 14.94 10,350.16 15.14
Deutsche Bank 14.21 9,926.60 14.52
Wells Fargo Securities 13.36 9,513.96 13.92
Citigroup 10.87 8,061.79 11.80
Goldman Sachs 10.05 7,563.72 11.07

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2016
Lender #Loans Vol$mln MktShr%
JPMorgan Chase Bank 133.67 8,670.33 13.34
Goldman Sachs 156.20 7,418.37 11.41
Deutsche Bank 178.17 6,510.75 10.02
Citigroup 184.41 5,512.20 8.48
Morgan Stanley 113.18 4,130.53 6.35

 

 

 

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