Creditor Takes Hit on Office-Backed CMBS Debt
When an underlying loan for a 20-building campus was sold at discount, the riskiest portion was wiped out.
In the latest loss to bedevil buyers of CMBS backed by a single commercial mortgage, investor Lord Abbett & Co. took a haircut of about $65 million when the loan associated with an office property was sold at a sizable discount to its face value. The loan was linked to an office campus in suburban Kansas City, a multi-building complex totaling 3.9 million square feet, Bloomberg first reported.
In 2021, the property became subject to a CMBS loan totaling about $232.5 million in the J.P. Morgan Chase Commercial Mortgage Securities Trust 2021-BOLT series, according to CommercialEdge data. Loan terms included interest-only payments at a note rate equal to the one-month LIBOR Index plus 4.15 percent.
Earlier this month, the underlying loan was sold at a sharp discount, leaving only $164 million for creditors—mostly Lord Abbett, who owned almost all of the securitization. The riskiest portion of the CMBS (Class D), whose face value was about $65 million, evaporated completely as a result, while there were no losses in Classes A to C.
Though a significant hit, the amount is relatively small compared with Lord Abbett’s total assets under management, with a value of about $222 billion. The privately held company, based in New Jersey, has a wide variety of holdings in equity, fixed income and alternatives.
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The 20-building property, at 11501 Outlook Street in Overland Park, Kan., and known as Aspiria, was developed in phases on 191 acres in the late 1990s and early 2000s. It served as Sprint Corp. headquarters until T-Mobile absorbed the telecom company in 2020. Now it is a multi-tenant property that is more than 90 percent occupied, according to CommercialEdge data.
This isn’t the first major hit to office-associated CMBS investors. Late last year, bondholders of a $350 million bond that financed the Gas Company Tower in Los Angeles suffered a loss of almost half that total, including bonds that were formerly investment grade.
Wilmington Trust sold the asset to Los Angeles County after foreclosing on the CMBS loan encumbering the property.
CMBS woes multiply
The hit taken by Lord Abbett on an office-associated loan is part of a larger picture of CMBS distress. In April, 10 CMBS loans with a total outstanding balance of $384 million were liquidated, generating losses of $155.7 million for investors, according to the CRE Finance Council. Loss severities ranged from 0.3 percent to 89 percent, with the average loss severity being 40.5 percent.
Across all property types, delinquent CMBS loans totaled 7.03 percent in April, up 38 basis points month-over-month, according to the council, citing Trepp data. Compared with a year earlier, delinquencies are up nearly 2 percentage points (196 basis points).
Delinquencies associated with office assets rate rose 52 basis points in April to 10.28 percent, representing the highest delinquency rate among all property types. Multifamily delinquencies grew the most for the month, up 113 basis points to come in at 6.57 percent—the highest that metric has been in about 10 years.
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