Commercial properties such as hotels and malls may have lost as much as a quarter of their value as the pandemic devastated the retail and hospitality businesses, along with other sectors.
The value of the collateral for commercial mortgage-backed securities has been written down by 27 percent on average when properties get into trouble, the Financial Times reported, citing data from Wells Fargo.
New appraisals are done when commercial real estate property owners fall behind on their mortgage payments, and the loans are handed to a special servicer.
Wells Fargo’s data also shows that the number of appraisals is going up, with 68 triggered in September alone.
Hotels, which have been struggling thanks to the collapse of the tourism industry, have experienced big losses in value. A Crowne Plaza hotel in Houston, for example, was valued at $25.9 million, down by 46 percent from its valuation in 2014 when its loan was bundled into a CMBS deal. The Holiday Inn La Mirada outside of Los Angeles was recently valued at $22.1 million, a dip of about 27 percent since its loan was securitized in 2015.
“The longer this crisis goes on, we will move into a valuation problem,” said James Shevlin, president of special servicer CW Capital.
[FT] — Akiko Matsuda