CMBS Week in Review: Strong CMBS Gains; Signs of Softening in Multifamily Segment

The major US indexes finished the week mixed, with the S&P 500 hitting a new all-time high (0.4% increase for the week), the Nasdaq notching modest gains (1.9%), and the Dow closing with a minor loss (0.8%). Friday's rally came on the heels of the release of the May CPI report which indicated that inflation had grown at the fastest rate since the summer of 2008 - the 5.0% year-over-year increase was a touch above estimates, but investors seemed to have either shrugged that off or already baked that headline number into their expectations.Both CMBS cash and the indexes posted strong gains for the week. Recent vintage conduit spreads narrowed by up to a basis point down the credit stack. CMBX 6-14 AAA spreads moved in by up to two basis points. CMBX 8-14 BBB- spreads narrowed by 23 to 40 basis points but spreads for CMBX 6 and 7 tightened by 118 and 94 basis points, respectively.

The three largest BWIC listings for the week had a combined notional amount between $80 million and $150 million. The listings primarily comprised of 2014 or 2020 conduit LCF AAAs as well as recent issue CRE CLO paper, with most of the exposures concentrated in the office and multifamily segments. Secondary trading totaled almost $700 million with agency and IO bonds excluded.

Back in April, Trepp reported that we had started to see signs of 'fraying' in the apartment segment in some major U.S. markets. To be sure, we noted that the apartment commercial real estate segment in no way paralleled the hotel or retail segments in terms of loan defaults and revenue or occupancy decline as a result of the pandemic. This month, we are back with a follow-up to see how the multifamily market looks now that most borrowers have submitted full year 2020 financials or Q1 2021 numbers. We looked for the largest loans in the private-label CMBS market where occupancy is less than 80% at a given property.See our multifamily occupancy update here.

Roughly $236.0 million across 16 CMBS loans were resolved with $223.8 million in losses in May - carrying an average loss severity of 94.82%. This was a slight drop in volume from the month prior, but lead to higher total losses as a variety of large REO retail and lodging assets resolved. The 12-month average disposition balance rose to $254.7 million, while the 12-month moving average loss severity climbed to 66.19%, up from 64.17% in April. See Trepp's list of the five largest loan losses here.

In the most recent episode of The TreppWire Podcast, we welcome Mike Benz, Trepp's Senior Vice President and Head of US Banking Solutions to discuss the regulatory shift in the banking market. We dive into takeaways from CECL and what's to come, the latest office headlines and stories that the market 'must know,' more retail news, and loan payoffs. Listen here.

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Occupancy Rebounds at Lower NYC Apartment(COMM 2019-GC44)- In the past, we have written several stories on declining occupancy levels in NYC apartments backing private-label CMBS loans. In the case of one sizable asset, servicer watchlist notes indicate the worst appears to be over. The subject loan is the $265 million 180 Water Street note, for which occupancy had rebounded significantly.

Trading Alert: Tenant Behind NYC Office SASB Loan to Vacate?(CGCMT 2015-101A)- According to Steve Cuozzo of the New York Post, hedge fund Two Sigma is in the market for 400,000 to 600,000 square feet of office space in Manhattan. For owners of Manhattan offices with space to spare, this would represent the big whale. In fact, Cuozzo lists seven properties that could be candidates for the hedge fund.

Three 2012 Mall Loans Head Back to Special Servicing, One Pays Off(BBUBS 2012-TFT) - According to June servicer data, three loans behind the (now) $365.75 million BBUBS 2012-TFT deal failed to pay off in June and one paid off in full. As of June, the deal is backed by loans on the Tucson Mall in Tucson, AZ, and the Town East and Town West Malls in Mesquite, TX. Those loans were originally slated to pay off in June 2020 but were extended last year.

Loss Analysis: Loss Severity Climbs on Large Retail and Lodging Resolutions - The highlight of CMBS disposition activity in May was the resolution of a handful of large REO retail and lodging assets. Average loss severity jumped sharply in May to 94.82%, with the $78.0 million The Shoreham Hotel loan and the $62.2 million Fashion Outlets of Las Vegas loan accounting for the bulk of the realized loss total for the month.

Several New Leases Signed For Big 2017 Office Loan(BANK 2017-BNK6)- According to Real Estate Weekly, six new leases totaling more than 105,000 square feet have been signed for 44 South Broadway in the New York City suburb of White Plains. The is good news for a big 2017 loan. The subject property backs the $108.5 million Westchester Oneloan.

Originally published in TreppWire, which is distributed every morning as a client-only email newsletter. TreppWire enables readers to stay up-to-date on market activity while providing a competitive advantage over others. TreppWire leverages Trepp's market expertise and proprietary data sets to provide daily market commentary, trend analysis, research, and breaking news to its clients.

Disclaimer: The information provided is based on information generally available to the public from sources believed to be reliable.

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