Sunday Summary: How Do You Spell Bad News? C-M-B-S.


Two of the pillars of lending — commercial mortgage-backed securities (CMBS) and collateralized loan obligations (CLO) — aren’t as solid or as useful as they had been in previous years, and that’s putting it politely.

Private-label CMBS and CLO issuance declined by more than two-thirds in just the last year, from $92.3 billion to $30.7 billion in September, according to the Commercial Real Estate Finance Council (CREFC). 

SEE ALSO: ‘The Backstory’: Commercial Real Estate’s Turnover

On the CMBS side, conduit CMBS — multi-asset, multi-borrower loans — saw issuance drop 27 percent on the year, while single-asset, single-borrower CMBS loans fell even further by 73 percent.

The CLO market isn’t looking much better and essentially ground to a standstill, with issuance dropping from $28.9 billion in September 2022 to $4.8 billion last month, a stunning 83 percent drop, according to CREFC.

And what’s especially concerning for the commercial real estate market is the number of defaults. Monthly delinquencies peaked at 10.31 percent during the pandemic, declined last year but now have started to tick up again, reaching 4.25 percent in August, the second month in a row the number climbed above 4 percent.

​​“What we’re seeing, as far as distress, is the most popular form of distress in conduit deals are maturity defaults. We’re not seeing many term defaults at this point,” said Matthew Halpern, a vice president of structured finance at Moody’s Investors Service.

If you want more info on exactly what CMBS and CLOs are, and how they’re impacting the market, we got you covered.

It’s Q3 report season!
If quarterly office reports get you as excited as us, then dig in.

First up, in New York City, the office vacancy rate dropped for the first time in nearly two years, dipping 16 basis points this past quarter to 16.5 percent.

That’s according to JLL (JLL), which tracked activity across Class A and B buildings only. But, while there was some good news on the vacancy front, overall leasing in those classes fell 18 percent compared to last quarter. And a big driver of the 4.3 million square feet signed was law firm Davis Polk & Wardell’s 700,000-square-foot lease at 450 Lexington Avenue.

Sailin’ on to D.C., leasing activity decreased from 1.4 million square feet in the previous quarter to 1.2 million square feet, while the availability rate remained at an all-time high of 22.3 percent, according to Savills.

Of the leasing activity, government agencies dominated the market, primarily through two General Services Administration deals.

Finally, office leasing in Orange County, Calif., showed some signs of life with 1.9 million square feet signed in the third quarter, an increase from 1.5 million in the second quarter and 1.1 million in the first, according to Savills.

But, that’s largely thanks to Western outfitters Boot Barn taking 116,261 square feet in Irvine, so maybe don’t expect the overall market to follow suit. (Starting to see a trend here…)

WeWon’t pay
We have an endless supply of WeWork (WE) puns at Commercial Observer, and the company gives us plenty of chances to use them.

This time it’s the news that WeWork opted to skip out on $95.2 million in interest payments as it hopes to negotiate with its lenders to improve its capital structure.

WeWork is now in a 30-day grace period with its lenders, and CEO David Tolley assured us that the company has “sufficient liquidity” to make those payments and “may in the future decide to do so.” (Which is exactly what I’m going to tell my student loan lender when my payments restart this month.)

If you want deals (you’ve got it)
TikTok gave the Los Angeles market something to dance about.

ByteDance, the parent company of the mega-popular social media app, signed on for more than 143,000 square feet of offices to add to its Culver City, Calif., footprint. That was spread out across two deals that represented the fourth- and seventh-largest office leases in Los Angeles in the third quarter.

New York saw some good activity this week, with Regus renewing its 37,031 square feet at 14 Wall Street for another decade; clothing maker Kellwood Company moving to 19,000 square feet at 1441 Broadway; and Building Services 32BJ Health Fund tacking on 18,800 square feet to its 22 West 19th Street offices.

And Empire State Building owner Empire State Realty Trust made a rare purchase outside of Manhattan and Connecticut by picking up a pair of Williamsburg, Brooklyn, retail buildings for $26 million.

On the sales side, this week was red hot in Florida. Monarch Alternative Capital and Tourmaline Capital Partners closed on a $250 million purchase of 801 Brickell; Location Ventures sold its Fort Lauderdale development site for $30 million; and Related Companies dropped $48 million for the Sorrento in Miramar, Fla., and $29.7 million for the Federation Plaza Apartments in Hollywood.

Green reads
New York City gave landlords a bit of a break on complying with its landmark climate legislation, Local Law 97, allowing a two-year grace period for tower owners to demonstrate they are on track to meet the new carbon emissions standards.

However, landlords aren’t satisfied with the breaks given by the city. Neither are environmental activists, who worry any delay could impact the city’s chances of reaching its long-term climate goals. 

“We don’t have two years,” said Pete Sikora, climate and inequality campaigns director at New York Communities for Change, a civic group. “Society has wasted decades on reducing pollution, so it’s now to avoid global catastrophe that has to drop fast.”

And, if you want more climate reads to close out your weekend, CO talked to Laura Fox, co-founder and managing partner at Streetlife Ventures, which invests in companies aimed at making cities more sustainable.

Fox previously was general manager at Citi Bike, but now has broadened her scope past greener ways to get around cities.

 “Cities are where we need to create this impact on climate,” said Fox.

Until next week!