$ 3.9 billion in outstanding CMBS could flow to lenders
Trepp has identified approximately $ 3.9 billion out of nearly 100 outstanding CMBS loan balances for which the borrower has indicated willingness to return the assets to the lender.
Trepp’s research supports the now-popular idea that waves of distress could be occurring in hospitality and retail. Trepp highlighted some regional malls including Westfield Citrus Park in Tampa ($ 126.4 million current loan balance), Westfield Countryside in Clearwater, Fla. ($ 95.9 million current loan balance) and the struggling Florence Mall in Florence, Ky. ($ 90.0 million). He also listed problem loans with a Sheraton Suites Houston in Houston and the Trumbull Marriott in Trumbull, Connecticut ($ 20.9 million).
A large group of problem loans are between Philadelphia and New York, according to Trepp. Regional shopping centers account for more than a quarter (26%) of loans for which borrowers could potentially hand over the keys to lenders. Limited and full service hotels each accounted for 18.09 of these loans. They were followed by community shopping centers (8.51%) and long-term hotels (6.38%).
The list includes some loans with balances over $ 200 million. Trepp’s Manus Clancy and Catherine Liu pointed out that his list represents what the situation looked like on October 21, 2020, and that what might appear to be an “pending deed in lieu (DIL)” can quickly change course. The list, which was created by reading the reviews of special agents, includes loans for which the borrower has indicated willingness to transfer ownership to the mezz lender. It did not include loans that showed the asset as REO.
Trepp also mentioned that the prospect of an act in lieu is sometimes used as a negotiating tactic. Just because the term is used does not guarantee that a property will go REO.
Earlier, Russell Hughes of Trepp wrote that some borrowers could be strategically in default on their loans. He pointed out that the delinquency rate for large balance loans is much higher than for those with smaller balance. The borrowers for these larger loans are typically more sophisticated and less burdened with recourse or collateral, which makes strategic defaults more rational, according to Hughes.
“While there are certainly borrowers who no longer have the capacity to make payments, the deviation of the default rate from the larger portfolio indicates that many of these borrowers have decided that because of the Under current circumstances, they will not be able to extend or refinance their existing loan at maturity and have therefore chosen to stop making payments before their due date, ”writes Hughes.