Finance  ·  CMBS

CMBS Realized Losses Climb Higher in April

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CMBS transactions incurred approximately $94 million in realized losses during April via the workouts of distressed assets.

CRED iQ identified 15 workouts classified as dispositions, liquidations, or discounted payoffs in April. Of the 15 workouts, four were resolved without a principal loss. Of the 11 workouts resulting in losses, severities for the month of April ranged from 1.5 percent to 71 percent, based on outstanding balances at disposition. 

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Aggregate realized losses in April were more than 1.5 times higher than March due, in part, to a higher volume of distressed workouts. The aggregate realized loss total of $94.2 million was lower than the average aggregate monthly CMBS loss total for the trailing 12 months, which was equal to approximately $124 million. By property type, workouts were concentrated in lodging, accounting for eight of the 15 distressed resolutions in April.

Distressed workouts for lodging properties had the second-highest total of aggregate realized losses ($28 million) by property type, which accounted for 30 percent of the total for the month. The largest distressed workout featuring a lodging property was the discounted payoff of the 241-room Marriott Saddle Brook, a full-service hotel located in Northern New Jersey. The hotel secured a $24.3 million mortgage prior to resolution.

Similar to many of the other lodging properties with distressed workouts this month, Marriott Saddle Brook transferred to special servicing in 2020 due to pandemic-related operational distress. The discounted payoff resulted in a realized loss of $11 million, equal to a 45 percent severity.

The largest individual loss and loss severity was associated with the real estate owned (REO ) liquidation of Park Plaza, a 283,326-square-foot regional mall located in Little Rock, Ark. The property became REO in October 2021 after first transferring to special servicing in June 2019. Outstanding debt at the time of liquidation totaled $73.8 million. 

Realized losses from the Park Plaza liquidation totaled $52.2 million, equal to a 71 percent severity. The mall, formerly owned by CBL Properties, was sold out of REO to Second Horizon Capital with plans for revitalization. The property is anchored by Dillard’s, but has had difficulty maintaining occupancy and rents from in-line tenants.

The largest workout by outstanding balance was a $300 million mortgage secured by Bergen Town Center, a 1 million-square-foot mall located in Paramus, N.J. The loan, which was originated in May 2013, transferred to special servicing in early March. However, the borrower, Urban Edge Properties, was able to refinance with a $290 million loan provided by New York Life and MetLife Investment Management. 

The one-month resolution for Bergen Town Center was the quickest of all of April’s workouts. Excluding defeased loans, there was roughly $3.4 billion in securitized debt among CMBS conduit, and single-borrower large-loan securitizations that was paid off or liquidated in April, which was approximately a 38 percent decrease compared to $5.4 billion in March. 

In April, 16 percent of the loan resolutions were categorized as dispositions, liquidations or discounted payoffs. The percentage of distressed workouts was markedly lower in the prior month, equal to 2 percent. Loan prepayment remained muted in April — approximately 6 percent of the loans were paid off with prepayment penalties — which was in line with prior months.

Multifamily had the highest total of outstanding debt payoff by property type in April with roughly 38 percent of the total by balance. Retail had the next highest percentage of outstanding debt payoff with 26 percent of the total. The $300 billion refinancing of Bergen Town Center was among the largest mortgages to pay off in April.

Marc McDevitt is a senior managing director at data analytics firm CRED iQ.