February CMBS Realized Losses Soar Despite Fewer Workouts
By Marc McDevitt March 20, 2023 6:15 pmreprints
Commercial mortgage-backed securities (CMBS) transactions incurred approximately $129 million in realized losses in February via the workout of distressed assets.
CRED iQ identified 17 workouts classified as dispositions, liquidations or discounted payoffs in February. Of the 17 workouts, six were resolved without a loss. Of the 11 workouts resulting in losses, severities for the month of February ranged from 1 percent to 95 percent, based on outstanding balances at disposition. Aggregate realized losses in February were approximately 70 percent higher than in January despite fewer distressed workouts.
On a monthly basis, realized losses for CMBS transactions averaged roughly $128 million during the trailing 12 months, which was in line with February’s aggregate total. By property type, workouts were concentrated in lodging, accounting for six of the 17 distressed resolutions.
Distressed workouts for lodging properties had the second-highest total of aggregate realized losses ($17.5 million), which accounted for 13.5 percent of the total for the month.
The largest distressed workout featuring a lodging property was a $17.5 million loan secured by Embassy Suites Lubbock, a 156-key full-service hotel in Lubbock, Texas. The loan transferred to special servicing in June 2020 due to pandemic-related performance issues. It was originally set to mature in January, but was ultimately resolved in February with a $16.4 million loss, equal to a 93.5 percent severity.
The largest workout by both outstanding debt balance and individual loss amount was the Town Center at Cobb, a 559,940-square-foot portion of a regional mall located in Cobb County, Ga., which is approximately 25 miles northwest of Atlanta. The property became real estate owned (REO) in February 2021 and had outstanding debt of $166.7 million at the time of liquidation. Realized losses from the REO regional mall totaled $96.5 million, equal to 58 percent loss severity based on the outstanding balance prior to liquidation.
The Town Center at Cobb liquidation alone accounted for 75 percent of the aggregate realized losses observed by CRED iQ last month. Also notable among February’s list of distressed workouts were three multifamily properties, including two that incurred losses.
Distressed workouts involving multifamily properties have been few in number over the past several months and have generally been able to be resolved without a principal loss. However, February’s results show that even the multifamily sector is not immune from distress.
Other rare property type appearances in February’s tally of distressed workouts included a co-operative housing property and a self-storage facility. Excluding defeased loans, there was roughly $3.5 billion in securitized debt among CMBS conduit, single-borrower large-loan and Freddie Mac securitizations that was paid off or liquidated in February 2023, a roughly 38 percent decrease compared to $5.7 billion the previous month.
In February, 8 percent of the loan resolutions were categorized as dispositions, liquidations, or discounted payoffs. The percentage of distressed workouts was 7 percent in the prior month. Approximately 6 percent of the loans were paid off with prepayment penalties, which was significantly less than 28 percent as of January.
Excluding Freddie Mac securitizations, multifamily had the highest total of outstanding debt payoff in February with approximately 37 percent of the total by balance. Lodging and office were the property types with the next highest outstanding debt payoff with 23 percent and 19 percent of the total, respectively.
Aside from Town Center at Cobb, the largest individual payoffs included a $345 million senior mortgage secured by the Rio All-Suite Hotel and Casino in Las Vegas and a $195 million mortgage secured by the Aruba Marriott Resort in the Caribbean.
Marc McDevitt is a senior managing director at data analytics firm CRED iQ.