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Monday, 20 May 2019

Starwood Property Sharply Writes Down Value of Malls Backing CMBS Loan

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Commercial Real Estate Direct Staff Report

Starwood Property Trust, which owns a 33 percent stake in a portfolio of four shopping malls that back a $685.6 million securitized loan, has written down the value of its interest in the properties by nearly 50 percent.

That's not a good sign for the CMBS trust that holds the mortgage, Starwood Retail Property Trust, 2014-STAR. Starwood owns the properties in a venture with at least one sovereign wealth fund, which owns the remaining 67 percent interest.

Morningstar Credit Ratings this morning flagged the CMBS transaction because of what it said was its high leverage and the fact that Nordstrom was vacating its anchor spaces in two of the four collateral properties: the 719,978-square-foot Mall at Wellington Green just west of West Palm Beach in Wellington, Fla., and the 927,692-sf MacArthur Center in Norfolk, Va. The remaining two properties are the 539,813-sf Northlake Mall in Charlotte, N.C., and the 626,162-sf Mall at Partridge Creek in Clinton Township, Mich.

Nordstrom occupied its space at the two properties subject to a ground lease, so it didn't contribute to the two properties' cash flow. But its departure could impact some inline tenants, particularly those with co-tenancy clauses in their leases.

As such, Morningstar said there was a "high likelihood" the loan would default at its maturity on Nov. 8. The loan was written with a three-year term, with an October 2017 maturity, but it had options to be extended by up to two additional years.

In order to exercise the first of those, the loan had to have a debt yield of at least 10 percent. It didn't, so the loan nearing its maturity had transferred to special servicing, which is handled by Wells Fargo Bank, also the loan's master servicer. Cash flow in 2017 was $58.6 million, down from $62.7 million in 2015, a year after the loan was securitized.

Wells Fargo negotiated a workout where the Starwood venture ponied up $25 million to pay down the loan's principal balance and agreed to further pay down principal by $800,000/month, reducing its principal balance from its original $725 million. In addition, any excess cash flow that the collateral generated, after debt service, was to be held by the trust as additional collateral. That reserve account now has $9.6 million in it.

The Starwood team also had committed to investing $53 million on tenant improvements and leasing commissions.

Nonetheless, Morningstar now pegs the four properties' value at just more than the CMBS loan's $685.6 million balance. But it said it expected the Starwood team to try to negotiate another term extension of its loan, given the amount of capital it had invested in the four properties, which were appraised at a value of $1.1 billion when the loan was originated.

Apollo Global Management owned the deal's most junior bond classes.

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.


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Additional Info

  • Syndicate to Realpoint: No
  • Sector: Retail
  • Subject: Commercial MBS (CMBS)
  • Deal Name: Starwood Retail Property Trust, 2014-STAR
  • Private: No
  • bloombergDealName: SRPT 2014-STAR
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Data Digest







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




cppichart FP



CMBS 2.0 Spreads


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





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