CMBS Realized Losses Rise in August

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“Commercial mortgage backed securities (CMBS) conduit and single borrower large loan (SBLL) transactions incurred approximately $205 million in realized losses during August 2022 via the workout of distressed assets,” wrote Marc McDevitt, a senior managing director at CRED iQ.

“CRED iQ  identified 19 workouts classified as dispositions, liquidations, or discounted  payoffs in August 2022. Additionally, there were seven distressed loans securitized in Freddie K transactions that needed  workouts, with four of the loans incurring  aggregate losses of $2.7 million. 

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“Of the 26  total workouts, only eight of the assets were resolved without a loss. Of the 18 workouts resulting in losses, severities for the month of August ranged from one percent to greater than 100 percent, based on outstanding balances at disposition. 

“Realized losses in August were 28 percent higher than the amount of realized losses in July due, in part, to a higher number of workouts. On a monthly basis, realized losses for CMBS conduit and SBLL transactions averaged approximately $146.6 million year to date. 

“Lodging properties accounted for the  highest number of distressed CMBS workouts last month with nine total  resolutions. 

“Five of the nine lodging workouts incurred losses, including Value Place Williston, a 248-key extended-stay hotel in North Dakota that has been real estate-owned (REO) since 2017 and had an outstanding debt of $17.2 million. The  property was liquidated with a 100 percent loss  severity based on the outstanding debt amount. 

“Other property types with multiple  distressed workouts included eight distressed multifamily properties, five distressed retail properties, and three office properties.

“The resolution of the WPC Department Store Portfolio loan represented the largest loss, by dollar amount and loss severity, among all distressed workouts last month. The  liquidation alone accounted for  roughly 30 percent of the total realized losses for the month. 

“The WPC Department Store portfolio consisted of five REO-anchored retail boxes attached to various regional malls. A sixth anchor box was previously sold in 2020.  Outstanding debt for portfolio totaled $55.3  million but realized losses upon liquidation were in excess of the loan balance and resulted in a loss severity of 111.6 percent based on the balance at disposition. 

“The largest workout by outstanding debt  amount was the $87.55 million State House Square loan, which was secured by an 837,225-square-foot office property in Hartford, Conn. The loan had been with the special servicer since March 2019 and was resolved with a 54 percent loss severity. 

“Excluding defeased loans, there was approximately $5 billion in securitized debt that was paid off or liquidated in August, which was a slight increase compared to $4.7 billion in July 2022. “In August, 7.7 percent of the loan resolutions were categorized as dispositions, liquidations or discounted payoffs. The percentage of distressed workouts was 7 percent in the previous month. Approximately 15 percent of  the loans were paid off with prepayment  penalties. 

“By property type, multifamily had the highest total of outstanding debt payoff in August with 27 percent of the total by balance. The  relatively higher percentage of multifamily debt payoff was driven by several maturities for loans securitized in commercial real estate collateralized loan obligation transactions.  

“Lodging had the second-highest total of outstanding debt payoff with 23 percent of the total. Among the largest lodging payoffs were a $471 million mortgage secured by a portfolio of 58 InTown Suites extended-stay hotels and a $265 million mortgage secured by a portfolio of 85 extended-stay hotels, also flagged under the InTown Suites brand.”