CMBS Maturity Balloon Loans Pop in August – Trade Observer

“Compared to previous months, CRED iQ observed an increase in CMBS loans with non-performing maturity balloons in August 2022,” wrote Marc McDevitt, Senior Managing Director of CRED iQ.

“There were approximately $4.7 billion in outstanding loans that were characterized as non-performing maturities as of August 2022. This figure excluded debt with properties that were foreclosed as well as real estate (REO) assets, but included loans that could have been transferred to the special service before the scheduled due dates.

“Almost all loans (99%) identified as non-performing defaults have already been transferred to a special service. Many loans, about 36% of the total outstanding balance, were subject to monetary defaults before maturity, resulting in transfers to special services.

“However, maturity issues were the primary reason for special service transfers for most non-performing maturity loans. About 19% of loans by balance transferred to special service due to a additional loans transferred to the special service for imminent default.

“In total, total debt outstanding for non-performing maturity balloons was 35% higher than in July 2022, when the total was around $3.5 billion. The surge comes amid an environment of rising rates that complicate the refinancing process.If cash flow issues are also present in the underlying collateral, extended workouts may be required.

“Furthermore, the increase in the number of defaults coincides with a higher volume of maturing loans. In December 2021, CRED iQ released a report forecasting expected maturities in 2022 and, on a monthly basis, July 2022 had the third highest total of expected maturities at $2.3 billion. This came a month before August’s spike in non-performing maturities.

“Expected maturities for the remainder of 2022 are concentrated in October and December, creating opportunities for maturity defaults to continue to manifest at a relatively high rate.

“Our observations included loans securitized in single asset, single borrower and conduit securitizations. Maturity defaults have been split evenly, by outstanding amount, between the two types of securitisations.

“A closer look shows that the amount of maturity defaults within the conduit subset has remained fairly stable over the past three months, ranging from $2.3 billion to $2.5 billion. This indicates that the recent surge in August can be attributed to single-asset, single-borrower securitization loans.

“The amount of securitized debt outstanding in single-asset, single-borrower transactions increased, on a net basis, by approximately $1.3 billion in August.

“One such example was the $465 million loan from Greenway Plaza, which was securitized in a single-asset, single-borrower securitization in 2017. The loan is secured by an office park of 20 buildings and 4.2 million square feet in Houston.

“The Greenway Plaza loan was transferred to special duty in July 2022 after defaulting on maturity in May 2022. A forbearance agreement expired in July rendering the loan non-performing.

“Maturity defaults can also have a significant impact on conduit securitizations in the form of adverse selection. Take the UBSBB 2012-C2 securitization, for example, which had eight specially managed assets remaining in September 2022, including three REO assets All five remaining loans were not repaid when due, leaving the entire outstanding debt of the securitization in the hands of special servicing mechanisms.

“By property type, retail and accommodation secured loans account for the highest percentages of past due non-performing loans. Isolating our perspective to CMBS conduit securitizations alone, retail loans accounted for approximately 67% of all past due non-performing loans, while loans secured by accommodation properties accounted for 20%.

“The high concentration of retail lending is made up primarily of guarantees from regional shopping centres. The Cumberland Mall in Vineland, NJ, and the Greenwood Mall in Bowling Green, Ky., are two of the more recent examples of regional malls securing loans that have defaulted on maturity in the past month.