December CMBS Remittance Update
All the latest about the ever-accelerating deterioration in CMBS, courtesy of Barclays' Aaron Bryson.
The pace of CMBS credit deterioration accelerated this month, especially in more recent vintages. The 30+ day delinquency rate across the fixed rate universe jumped 59bp to 6.52%, versus the trailing three-month average pace of 39bp. The increase was largely led by loans which were transferred to special servicing in previous months. This is evident by the roll rate, defined as the percentage of loans by balance that changes from one delinquent status to another. The roll rate from special servicing current (SSCur) to 30+ days delinquent was 21% in December across CMBX 1-5 deals, versus the trailing three-month average of 15%.
Recent vintage loans led the weakness. By vintage cohort, the non-performing loan rate for 2007+ vintage loans rose by 91bp. Across CMBX, Series 3 was a laggard, with the non-performing loan rate jumping 102bp. This was led by four large loans, totaling $648mn, rolling from SS-Cur to 30 days delinquent status. CMBX.4 also deteriorated meaningfully with an 84bp increase. CMBX.5, however, remained the worst series on a cumulative basis, with a non-performing rate at just below 7%. Property-wise, the rotation between multi-family and hotel sectors as the worst-performing sector continued as multi-family worsened the most this month with a 99bp increase overall.
An update on specific special-serviced/delinquent deals and their increasingly troubled underlying properties:
- BACM 05-1: The $51.3mn Parkway Portfolio loan (2.72% of deal, SS-Cur), backed by a portfolio of three office properties in North Carolina and Georgia, was transferred to special servicer this month. According to the servicer, 21% of the space vacated or stopped rent payments. Given that no recent financials have been reported since underwriting (1.5x DSCR), a recent DSCR of 1.0x is assumed, leading to a 50% expected loss given default.
- JPMCC 04-CBX: A single-tenant office building located in Houston, Texas, secured the $50.0mn ABB Building loan (3.01% of deal, SS-Cur), which matured in November 2009 and is unable to refinance. The single tenant, ABB Inc., subleased most of its space. According to the borrower, the strategy was to convert the subtenants to direct tenants in December 2009 when ABB’s lease expires. There is a $10mn letter of credit available with $5mn of cash reserved for leasing. ABB paid $13psf NNN1 under its lease which appeared to be below the current market asking rent of $16-$18psf NNN and $24psf gross. Given the market availability rate of 20% in the Westchase submarket, an extension of 36 months is expected, to give the building enough time to stabilize. A 1% loss is assumed for servicing fees and costs.
- NASC 98-D6/CMAT 99-C1: The two A-notes of the $283.8mn Springfield Mall debt stack (5.90% of NASC 98-D6, 6.21% of CMAT 99-C1, SS-Cur), which includes an additional $102.5mn mezzanine debt, is backed by a 1,418k sf retail property located in Springfield, Virginia. The borrower planned to begin renovation in spring 2009 to convert the mall into a “Town Center” concept consisting of retail/hotel/office/residential units, with the retail portion opening in November 2009. Occupancy and DSCR had since dropped to 67% and 0.23x, respectively, as at September 2009 from 84% and 0.94x as at December 2007; tenants moved out in anticipation of the renovation. However, the borrower requested a loan modification in September 2009 and indicated that it will no longer make capital contributions and the property would not cover debt payments going forward. The remaining tenants are either on a month-to-month lease or with leases expiring before the end of 2010. We estimated a loss of 55% with a default in the very near term.
- WBCMT 06-C23: The $205.0mn 620 Avenue of the Americas loan (4.95% of deal, SSCur) is the A-note of a $265.0mn debt stack, which includes a $30.0mn B-note and a $30.0mn mezzanine note both held by SL Green. The loan is backed by a mixed-use office and retail property in Manhattan, New York, and transferred to special servicer this month. The most recent DSCR as of September 2009 was 1.03x and a debt service reserve of $16.5mn had been depleted. The assumption at underwriting was retail tenants paying rents in the low $20psf would roll to market of $35-$60psf. Furthermore, the largest tenant, Gap, which occupies 36% of the building (office space), had decided to vacate when their lease expires in November 2010. With Gap leaving, it would be very difficult to fund the debt service. A 24-month extension is assumed with 15% loss. However, this could be a candidate for a modification with principle write-down, because SL Green’s involvement in the subordinate debt.
- CSMC 07-C2: The Three Westlake Park and Four Westlake Park office properties in Houston, Texas, secured the $63.2mn Three Westlake Park loan (1.93% of deal, 30 days) and $82.4mn Four Westlake Park loan (2.52% of deal, W-Cur), respectively. The two loans are cross-collateralized and cross-default. Based on reported financials, both loans seemed to be performing financially. The 30-day delinquency could be a payment delay rather than a true default. BP, which occupied 88% of the space, has renewed its lease at Four Westlake and expanded to the entire building at a higher rental rate. An extension of 24 months is expected, given the overall leverage of both loans, with 1% of loss to account for certain servicing expenses.
An update by CMBX vintage:
The overall non-performing rate of CMBX.1 increased by 47bp to 6.41%, at a slightly slower pace versus the trailing three months. Notable loans newly delinquent or transferred to special servicer are as follows:
- JPMCC 05-CB13: The $56.1mn Investcorp Portfolio loan (2.15% of deal, SS-Cur) is secured by a portfolio of five office/industrial properties located in Pennsylvania. The loan was transferred to the special servicer as the borrower had requested a modification. The last reported DSCR, as at June 2009, came in at 1.92x with an 87% occupancy. 27% of the space though had gone dark since November 2008. At a 9.5% cap rate, a loss of 10% is expected after a 24-month extension.
- MLMT 05-LC1: Two office properties in Dallas, Texas, secured the $59.1mn Four Forest Plaza and Lakeside Square loan (4.05% of deal, 30 days). In addition to the A-note, the debt stack also consists of a $4.3mn mezzanine note. The borrower has been in a grace period with respect to payment since January 2009. According to the servicer’s comment, the borrower anticipated that the properties would not be able to cover debt for 2009 and that an additional $4.1mn would be needed for TI/LC (Tenant
Improvements & Leasing Commissions) and other capital expenses. A 40% loss is expected assuming default.
An increase of 48bp in non-performing rate of CMBX.2 brings the number to 6.33%. The pace is faster compared with the trailing three-month average of 39bp. Of note are the following loans that were newly delinquent or transferred to special servicer:
- BACM 06-5: A portfolio of 13 hotels located across eight states is the collateral for the $135.6mn Trinity Hotel Portfolio debt stack, of which the $130mn A-note (5.89% of deal, SS-Cur) is securitized in BACM 06-5. The loan was transferred to special servicer (Midland), due to the servicer’s determination of imminent default. The last reported DSCR, as at June 2009, came in at 1.04x. An extension of 36 months beyond the maturity date in October 2011 is expected, leading to a 30% loss.
- MLCFC 06-2: The $102.8mn Penn Mutual Towers & Washington Square Garage loan (5.72% of deal, SS-Cur), backed by a mixed-use property with a garage in downtown Philadelphia has been transferred to special servicer for imminent default. According to the servicer’s report, a major tenant occupying 16% of the space is vacating and, even though a replacement tenant is lined up, a substantial TI/LC expenditure is needed. The borrower is seeking lender’s assistance and loan modification. A loss of 5% is expected after a 24-month extension.
The worst-performing series this month, CMBX.3, saw a jump of 102bp in the nonperforming rate to 6.80%. All significant loans that went delinquent were previously transferred to special servicer and highlighted in prior months’ remittance reports.
The second worst performing series this month, the CMBX.4 non-performing rate rose 84bp to 6.50%. Of note:
- BACM 07-3: The $200mn Renaissance Mayflower Hotel loan (5.70% of deal, SS-Cur) is another loan backed by hotel property that was transferred to special servicer last month due to imminent default. The 657-room, full-service hotel is located in Washington, DC. DSCR as at June 2009 is 1.06x, the first time it came in above 1.0x since loan origination. The sponsor is Rockwood Capital, a large private real estate company. Taking into account the property’s relatively strong location, an extension of 36 months is expected, leading to a 30% loss.
- MLCFC 07-7: The largest loan in this deal, $105.0mn One Pacific Plaza loan (3.82% of deal, 30 days), is 30 days delinquent. The loan is backed by a 429k sf mixed-use property consisting of primarily office space in Huntington Beach, California. A combination of declining occupancy and increasing tax expenses resulted in a shortfall that the borrower is unwilling to continue to fund. The latest occupancy is 72%. A loss of 55% is expected given default, based on a price/sf valuation of $140.
The non-performing rate of CMBX.5 rose 62bp to 6.99%, at a pace consistent with the prior three-month average. Similar to CMBX.3, all loans that went delinquent were previously transferred to special servicer and highlighted in prior months’ remittance reports.