A fresh article from Bloomberg is saying delinquency could rise to nearly 6% on CMBS debt. That's high. It's been my understanding that most of the CMBS deals are finding new debt or are able to sell. If interest rates rise and cap rates follow, these old deals with tight DCR's may struggle. Who knows. Nothing is what it seems anymore.
"The delinquency rate for commercial mortgages that have been packaged into bonds is forecast to climb by as much as 2.4 percentage points to 5.75 percent in 2017, reversing several years of declines, as property owners struggle with maturing loans, according to Fitch Ratings. That sets the stage for bondholder losses."
We are going to know a lot more 12mo from now, this is certain.
We know some acquisitions and dispositions are adapting to a about a 50-75bp rise in rates. Are any of you guys on the AM side struggling to place new debt?
This is mainly an issue in suburban office markets and large retail assets like malls where vacancy is still high and prices haven't really grown since the recession. In major MSAs this problem has mostly been remediated. I don't believe the total outstanding debt is really even that much any more.
Expect more news headlines like the one we saw the other day where someone "Bought a mall for $100!!1!1!" On Forbes.
LOL
I remember over a year ago seeing companies setting up shop to acquire all these distressed assets due to ballooning debt etc. In my head I'm thinking, wait, there is long term debt in the 3% range and most of these ballooning deals were in the 5's, rents are up, caps are down, most are refinancing easily and/or selling.
Yeah, I see a pretty big fizzle on ballooning CMBS debt.
Regarding regional malls. I had to package up a dozen regional mall comps here in CA. I was shocked how high well located, non big box malls are selling for on a $sqft basis. Meanwhile, in the heart of Silicon Valley, a high vacancy older big box mall was selling at a 50% discount.
A regional mall close to where a proposed premium outlet center was to be built had me dive into the tenant profile of the older neighboring mall. One google search later and the picture was clear...the older malls main selling point "Anchors such as JC Pennys, Sears and two Macys locations"...lol oh man. Those are not buzzwords in retail anymore.
Article today in the WSJ:
http://www.wsj.com/articles/mall-owners-rush-to-get-out-of-the-mall-bus…
"As mall property values sink below their loan balances, mall owners are more aggressively taking the step to walk away."
I anticipate we will be seeing a lot of articles like this in the near future for the traditional / regional malls. Owners / developers will need to figure out a re-positioning strategy for this "dying bread" if they choose to reinvest (vs. walk away or sell). A few come to mind, but obviously it's market specific.
That sounds like you were looking at the tenant profile of Stoneridge Mall while the Livermore Premium Outlets were in talks.
There's something like $185 billion in CMBS debt maturing this year according to TREPP, 80% of which will come due the first half of the year. I heard a speaker (major CMBS player) at a December CREFC event say that only about 75% of the maturing loans are refinancable (sp?). The easiest deals have already been refinanced with new conduit, balance sheet or agency debt, leaving almost $45 billion of overleveraged deals with slim hopes of refinancing by maturity without help. These are not necessarily bad deals but might need right sizing with new equity/mezz infusions so new DSCR and LTV covenants can be met after "aggressive" (i.e. unrealistic) 2007 underwriting and appraisal valuations. Rising interest rates certainly complicate the picture. Special servicers will get busy again so there may some DPO opportunities for some buyers but not to the volume or discount extent some of the vulture funds that have been raised projected.
Sensational reporting. Gotta parse out the constituents. CMBS 2.0/3.0 is fine
"The delinquency rate for commercial mortgages that have been packaged into bonds is forecast to climb by as much as 2.4 percentage points to 5.75 percent in 2017"
That increase is all legacy. Frankly I don't think they have any business conflating legacy and post-legacy delinquencies. That aside, it's arithmetic: as long as legacy paydowns outpace new issue, of course the aggregate delinquency rate will climb - the denominator (all CMBS) shrinks while the numerator (60+ days delinquent) stays the same or creeps up. Net negative issuance distorts the optics
"That sets the stage for bondholder losses."
I'm pretty sure anyone who holds legacy paper is well aware of the magnitude of losses they might take on any given tranche at this point. If they don't have the analytical capability to come up with those estimates, they're playing in the wrong sandbox
5 Times Square came across my desk this week and that was one of the most fucked up capital stacks I've ever seen. Yes, even trophy assets have serious overleveraging issues. God speed to those guys with that refi.
A lot of this stuff has gone straight to our bridge program because there was no way we could have refinanced them via CMBS
Out here in Ca, as I drive these malls with dark JcPenny locations that are for sale/lease, in my mind I'm thinking that these could be pretty cool MF developments. In the more prime locations, maybe a dark big box could become a hotel. The center of the structure could be stores, gyms, etc. Maybe a master planned MF community.
I like the opportunistic thinking, but it may be difficult making the numbers stack (rental per square foot and TI would likely be huge, especially for hotels!), but I guess if you're inventive you could bring in something interesting (like a gun range, bowling alley, arcade) but these tenants are usually pretty risky - personally, if it was prime location, I'd go with shared office space (maybe rent out space on a "per chair" basis depending on density of foot traffic)?
How cheap could one acquire a vacant 150k sqft space, lol? I would imagine very cheap. Yeah, why aren't there bowling alleys in malls. This makes sense. They always seem packed too.
This is our most recent CMBS thread so i figured I would ask here. Where, outside of rating agencies and SEC filings can i find information on an existing issue? I've read ratings reports that include information from outside the CMBS filing and wanted to see if there was another source I was missing?
CMA
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