Finance  ·  CMBS

Lodging and Retail Drive Fourth-Quarter CMBS Workouts


CRED iQ analyzed a sample of CMBS transactions that have incurred realized losses from liquidations during the fourth quarter of 2023. In our analysis, CRED iQ identified 23 loans with an unpaid balance of $288 million that resulted in a total loss amount of $187 million. Of the 23 workouts resulting in losses, severities for the fourth quarter ranged from 1 percent to 111 percent, based on outstanding balances at disposition and liquidation expenses.  

Consistent with the earlier quarters in 2023, fourth-quarter workouts were concentrated in lodging and retail by property type. Lodging workouts accounted for eight of the 23 distressed resolutions in the fourth quarter, and retail workouts accounted for seven distressed workouts. Distressed workouts for retail properties had the highest total of aggregate realized losses ($131 million) by property type, which accounted for 70 percent of the total for the quarter. Distressed lodging workouts had the second-highest total of aggregate losses by property type with $26 million, or 14 percent of the total.

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The largest realized loss of the quarter was the WPC Department Store portfolio in November, which notched both the highest loss severity of 111.6 percent and also the greatest realized loss of $61.7 million. The retail segment held the top three spots with the Shops at Northern Boulevard in Long Island City, N.Y., and Oak Court Mall in Memphis, Tenn., taking second and third place, respectively.

One fourth-quarter workout example involved Kirlin Industries, a 95,000-square-foot flex office property in the Washington, D.C., market liquidated with a realized loss of $6.4 million in December 2023. Kirlin Industries was the sole tenant of the property until it vacated in March 2020 without notice, despite its 2029 lease expiration. The loan collateralized by the Kirlin Industries property was added to the watchlist in April 2020 but did not transfer to the special servicer until July 2021.The realized loss to the trust represented a 50 percent loss severity. 

The Fairfield Inn & Suites Kansas City, a 99-room lodging property in Kansas City, Mo., liquidated in the fourth quarter with a realized loss of nearly $4.4 million. The limited-service property was included in a September 2023 auction, resulting in a closing date in November 2023. Outstanding debt at the time of disposition totaled $6.5 million, representing a 61 percent loss severity. The property has been real estate owned since August 2021 and had been in special servicing since October 2020 due to imminent monetary default. 

Mike Haas is the founder and CEO of CRED iQ.