Retail and Lodging Assets Continue to Lead CMBS Workouts in June

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“CMBS transactions racked up approximately $80 million in realized losses during June 2022 through the workout of distressed assets,” wrote Marc McDevitt, a senior managing director at CRED iQ.

CRED iQ identified 21 workouts classified as dispositions, liquidations or discounted payoffs in June 2022. Additionally, there were two distressed loans securitized in Freddie K transactions that also needed workouts, although neither workout resulted in a principal loss to the trust.

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“Of those 23 total workouts, 11 distressed assets were resolved without a loss. Of the 12 workouts resulting in losses, severities for the month of June ranged from less than 1 percent  to 100 percent, based on outstanding balances at disposition. In total, realized losses in June were significantly lower than May. That said, May realized loss totals were the outlier on the high-end through year-to-date 2022.

“Retail and lodging properties accounted for 83 percent of the total number of distressed CMBS workouts this month, with 10 retail workouts and nine lodging workouts. Further, approximately 75 percent of realized losses in June were associated with retail properties.

“The liquidation of Florence Mall represented the largest loss by dollar amount. The property was formerly owned by Brookfield Property Partners but the firm agreed to a deed in lieu of foreclosure in January 2021 after the loan transferred to special servicing in July 2020. After a nearly two-year workout, the loan was resolved with a 52.5 percent loss severity, resulting in $47 million in principal losses to CMBS certificate holders.

“While there was only one distressed workout of an office property in June, the disposition was notable. Commerce Park IV and V consisted of two real estate-owned (REO) office buildings located in suburban Cleveland. The properties had been in special servicing since January 2019 due to declines in occupancy, and those occupancy issues did not improve in subsequent years. The buildings became REO in March 2021. Outstanding debt for the properties totaled approximately $12.5 million at disposition and Commerce Park IV and V were liquidated with a $10.4 million principal loss — or an 83 percent loss severity.

“Excluding defeased loans, roughly $7.8 billion in securitized debt was paid off or liquidated in June, which was higher than May 2022’s $5.2 billion. By property type, lodging had the highest total of outstanding debt paid off in June, driven by the retirement of a $1.38 billion mortgage secured by the 3,027-key Cosmopolitan of Las Vegas. Blackstone completed the sale of the resort and casino in May for $5.65 billion in a transaction that allows the firm to retain partial ownership and transfers operations to MGM Resorts, among other details.”