Browse Tag: CMBS

CMBS Credit Risk Elevated By Louisiana Floods

A group of 302 Louisiana properties backing over 200 loans totaling approximately $1.1 billion in allocated property balance have, according to Morningstar credit ratings, elevated default risk due to the flooding in the area.

The August 12 floods killed 13, dumping three times as much water on southern Louisiana as did Hurricane Katrina in 2005. The areas surrounding Baton Rouge and Lafayette have seen the worst damage, prompting evacuations of at least 30,000.

Multifamily and Retail Properties Hit Hard

Affected commercial properties located in the 20 flooded Louisiana parishes included a group of the ten largest properties in the area.  The properties make up about a quarter of the portfolio backing a 2014 Freddie Mac offering totaling over $1 billion. Morningstar called leasing agents at the properties but could confirm flood damage at only one of the ten, a multifamily complex. In Livingston Parish — the hardest-hit in the area according to the Baton Rouge Chamber of Commercce — multifamily, self-storage and stand-alone retail properties stand amid the 86% of housing that experienced flooding. Morningstar’s research identified the Freddie Mac CMBS has the most exposure to multifamily properties, with loans backing 52 such, totaling over $700  million.

Renter Demand Uptick?

According to Urban Land Institute:

Although there is risk that many of these properties were damaged by the floods, reports indicate that the Baton Rouge area is undersupplied, so undamaged multifamily properties may see increased demand as people seek out new homes.

According to the Baton Rouge Area Chamber report, retail, which accounts for 31.8 percent of the CMBS exposure in the area, was the hardest-hit industry. Even properties that may not have been damaged may feel the effects of the disaster. Although the economic effects of the flood are still uncertain, malls will likely see reduced foot traffic over the coming months. As a result, we believe that the $126.9 million Mall of Acadiana loan in BACM 2007-2 may suffer from the aftereffects of the floods, even though all stores in the mall were open for business at the end of last month.

The flood costs to the people of Louisiana are incalculable, but the soaking could well spread to investors and taxpayers — even as the Freddie Mac guarantees are in place to protect principal and interest payments, the shock of a rare event like 2016’s Louisiana flooding has put the structure in all of structured finance to the test.


Meet H.R. 4620: Preserving Access To CRE Capital Act

Earlier this month, the US Senate Banking Committee held a hearing critical to borrowing in the commercial real estate industry.  The hearing, entitled “Improving Communities’ and Businesses’ Access to Capital and Economic Development” included discussion of a House bill introduced by Rep. French Hill (R-AR) tagged H.R. 4620, the “Preserving Access To CRE Capital Act”.

The Act, according to a May 19 letter sent from NAR President Tom Salamone,  makes a modest yet important change to the “Qualified Commercial Real Estate” (QCRE) exemption to the commercial real estate risk retention rules slated to go into effect in December of 2016 under Dodd-Frank.

The issue centers on the class of commercial mortgage-backed securities (CMBS) called single-asset, single-borrower, or SASB.  In his letter, President Salamone continues:

The Preserving Access to CRE Capital Act makes a modest but important change to the “Qualified Commercial Real Estate” (QCRE) exemption to the commercial real estate risk retention rules slated to go into effect in December 2016. These impending rules are, as written, overly broad. Single asset/single borrower (SASB) commercial mortgage backed securities (CMBS) are not exempt, despite being low-risk, and not the type of transaction the Dodd-Frank Act was intended to regulate. Rep. Hill’s legislation would fix this oversight by widening the QCRE exemption to include SASB and interest-only loans. Without this fix, liquidity rates will be impaired and borrowing costs will go up.

CMBSs are important sources of financing for commercial real estate projects of all kinds, providing about 25% of all commercial real estate lending in the country1 . They are especially important in secondary and tertiary markets, where they provide a significant portion of the financing for smaller, “Main Street” businesses. Arbitrarily reducing liquidity in the CMBS market will thus reduce liquidity across the board and raise borrowing costs for commercial real estate loans in all markets.

H.R. 4260, introduced in the house in February, promises to address the problem of overly broad risk retention rules.  To learn how, you can read the entirety of the bill after this link.

Risk Retention: The New CMBS Rules

The New York Stock Exchange, the world's large...

The Wall Street Reform and Consumer Protection Act (also known as Dodd-Frank) was written in part to address the 2007-08 systemic risk crisis in credit markets caused by the mispackaging and mislabeling of bonds made up of collections of mostly residential mortgages that went bust. The banks that performed the packaging, regulators reason, each contributed greatly to the giant and hidden risks by routinely selling off the bonds they packaged. These were sold in their entirety, meaning the bank’s risk was effectively zero if it happened that the contents of the bond were found later to be in default.

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CMBS Update: Resolving Defaulted Loans And Plummeting Delinquencies



The news in the commercial mortgage-backed securities (CMBS) market is positive year-over-year for the five major property sectors.

As suggested by earlier announcements by credit rating agencies including Fitch, distressed commercial real estate assets are receiving the benefit of special servicing, often by third parties, that are lending stabilization to the CMBS market.

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Moody’s: Commercial Real Estate Keeps On Improving

Pictures of raised thumbsMoody’s Q1 2013 US CMBS and CRE CDO Surveillance Review is out.  The verdict?  Somewhat slower commercial real estate improvement throughout 2013 but improvement nonetheless.

Sector fundamentals will drive improving market conditions, making a significant rise in losses on loans backing US commercial mortgage securitizations (CMBS) unlikely.

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Hurricane Sandy: The Commercial Property Toll

Crane Collapse on 57th Street
Crane Collapse on 57th Street (Photo credit: Sarah_Ackerman)

First, the good news. With thoughts to those on the eastern seaboard still struggling with interrupted electrical, infrastructure damage and the like, it appears that the aftermath of Hurricane Sandy is not going to seriously disrupt the wider US economy.  That’s not to minimize the very real trials of our friends out east, it’s rather to put things into perspective. Sandy’s huge impact up against the monumentally enormous, single largest economy in the world  – the $14 trillon GDP US economy – means at a big enough scale, Sandy might just be a blip on the books.

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