- According to data from Trepp, a New York-based research firm that monitors the CMBS market, approximately 20 percent of all CMBS loans are classified as either “in grace period” or “beyond grace period.”
- Retail CMBS loans that were not paid in April have risen from 1.7 percent in March to around 9 percent, Trepp said.
- The data speaks to a larger fear that haunts the commercial real estate industry: That Covid-19 could cause an even larger mortgage crisis than the one that ravaged American homeowners in 2008.
The coronavirus outbreak is already triggering an increase in commercial mortgage delinquencies in the hotel and retail industries, a recent study shows.
The data speaks to a larger fear that haunts the commercial real estate industry: That Covid-19 could cause an even larger mortgage crisis than the one that ravaged American homeowners in 2008.
Commercial mortgage-backed securities, or “CMBS,” are vehicles which take out loans for properties such as apartment buildings, hotels, office buildings and shopping malls and bundle them into one investment product. Today, CMBS loans account for about 15 to 20 percent of all commercial real estate mortgages. Many lenders include banks and insurance companies.
Hotel accommodation was among the first sectors to start experiencing the impact of coronavirus restrictions. Just before state governments started to issue orders for stay-at-home, companies were cutting back on travel. And they canceled large gatherings such as conventions and concerts.
According to data from Trepp, a New York-based research firm that monitors the CMBS market, approximately 20 percent of all CMBS loans are classified as either “in grace period” or “beyond grace period.” That’s up from March’s around 1.5 percent of these loans. Read more about NYC real estate investment here.
Many of those payments should have been due by April 10. If that percentage sticks for the rest of the month, however, the dollar amount of these unpaid loans could reach $15 billion for the U.S. hotel sector, Trepp said.
Retail CMBS loans unpaid in April have jumped from 1.7 percent in March to about 9 percent, Trepp said. If that percentage holds up to May, the dollar amount of retail loans that were affected may reach $10 billion, the researcher said.
According to Trepp, the spike in late payments is an early indicator of how bad things could be for retail and property lodging. The figures show a more than 10-time rise in hotel borrowers, so far, not paying their loans in April, and around a five-time retail rise, said Manus Clancy, senior managing director of Trepp.
What they see, Clancy says, is a lot of notes which say ‘We want to be forbearant. We can’t afford this.’ He warned these figures may be on the low side of what is to come. There are several examples of loans for which the April 1 payment was made, but for which the watchlist statements now suggest that a forbearance has been requested. For instance, Northridge Mall in Salinas, California, made its April payment on its $79 million loan. But because of Covid-19 the loan servicer has asked for relief, Clancy said.
West Lancaster Plaza, which sits on a $10.1 million loan in Lancaster, California, is currently in a grace period for April, meaning it has not made its April payment. The loan servicer said this loan is being monitored for hardship. And Trepp said the borrower has sought a three-month forbearance on monthly payments.
Some bigger real estate names are already speaking out on the subject. The U.S. market for commercial property mortgage loans is on the verge of collapse according to Tom Barrack, CEO of real estate investment company Colony Capital.
If these institutions are not permitted to retain the flexibility and patience needed to undertake the efforts to restructure loans that will be critical to resolving the Covid-19 crisis, loan repayment demands are likely to escalate at a systemic level, causing a domino effect of borrower defaults that will have a rapid and serious impact on the wide range of stakeholders in the real estate sector, including landlords, developers, homeowners, tenants, employees, and hotel managers. During all of this, Carl Icahn, the billionaire investor, plans to short commercial mortgage bond market, since he anticipated a wave of defaults.