CMBS market faces staggering losses even with vaccine hopes

Demand for malls, hotels and office space may be forever altered as experts say Covid has changed shopping, work habits for good

National /
Dec.December 08, 2020 10:45 AM
The Walden Galleria in Buffalo, New York (Photo via Visit Buffalo Niagara)

The Walden Galleria in Buffalo, New York (Photo via Visit Buffalo Niagara)

Investors in the $550 billion commercial mortgage-backed securities market could see hefty losses as real estate sectors will continue to struggle after a Covid vaccine becomes widely available.

Morgan Stanley is projecting that losses for CMBS deals backed by dozens of different loans could average about 5 to 8 percent, according to a Bloomberg report.

Demand for malls, hotels and office space could drop even as vaccine distribution becomes widespread as experts believe that companies and consumers have changed their shopping and work habits for good.

Many notes rated in the BBB range could be forced to pay investors far below their face value, Bloomberg noted, citing Morgan Stanley’s commercial real estate research unit. And even some AA notes might see a valuation decline in several transactions.

Malls, in particular, are taking a hit during the crisis with property values falling and many loans heading back to special servicing. In August, Walden Galleria, a large mall near Buffalo, New York, was reappraised at a value of $216 million, a 64 percent drop from 2012. [Bloomberg— Keith Larsen


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