TRD Insights: Pandemic has sent over $20B in CMBS debt into special servicing

Nearly 90% of the mortgages were on hotel and retail properties

TRD NATIONAL TRD INSIGHTS /
Jun.June 22, 2020 08:00 AM
CMBS loan transfers to special servicers ballooned to $20 billion from March through May (iStock)

CMBS loan transfers to special servicers ballooned to $20 billion from March through May (iStock)

The number of CMBS loans transferred to special servicers has ballooned during the coronavirus crisis, and has totaled $21 billion in the last 90 days. And most of those troubled loans are secured hotel and retail properties.

From March through May, 439 commercial mortgage-backed securities loans were transferred to special servicing compared to a total of 674 loans and $9 billion for all of 2019, according to a recent report from Fitch Ratings.

In January and February, before the virus took hold throughout the country and led to the economic shutdown, just 34 CMBS loans entered special servicing.

When mortgages on commercial properties are packaged into securitized debt deals, there’s a framework of servicing companies to manage those loans. Primary and master servicers do the day-to-day work of keeping tabs on properties and collecting monthly mortgage payments.

But when CMBS borrowers need to request significant help on their debt, such as forbearance, they have to go to their special servicer.

Some high-profile CMBS loans that were recently transferred to special servicing include a $975 million mortgage on Jeffrey Soffer’s Fontainebleau Miami Beach resort, and a $272 million loan Ceruzzi Properties took out on the Lipstick Building ground lease in Manhattan.

About 90 percent of the transferred loans are secured by hotel and retail properties. Hospitality companies have furloughed big chunks of their workforce and early on pleaded with the federal government for cash injections after state governments shuttered nonessential businesses and enacted travel restrictions. The pandemic has dealt a devastating blow to retailers, forcing several debt-loaded companies such as Neiman Marcus and J.C. Penney into bankruptcy.

Fitch said it anticipates special servicing transfers will grow in the coming months for office and retail properties, which have longer-term leases. The avalanche has also taxed special servicers, whose workforce is stretched thin processing forbearance and loan modification requests from struggling borrowers.

Just 8 percent of those loans transferred were reported as impacted by the coronavirus. But Fitch said that is likely because the Commercial Real Estate Finance Council had not yet required borrowers who had been affected by the virus to give that as the reason.

Loans transferred to special servicing doesn’t necessarily mean those borrowers will default. Only 29 of the loans transferred this year — totaling $242.5 million — were at least 60 days delinquent, according to the report.


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