The Real Deal Miami

Morningstar: Bankruptcy of hhgregg makes retail CMBS loans riskier

Morningstar says $6.9 million CMBS loan on hhgregg store in Boca has greater default risk
March 11, 2017 12:30PM

The hhgregg store at 20841 State Road 7 in Boca Raton (Source: Yelp)

Investment research firm Morningstar Credit Ratings identified 10 commercial real estate loans with a heightened default risk since retailer hhgregg Inc. filed for bankruptcy, including a loan of almost $7 million on an hhgregg store in Boca Raton.

The Indianapolis-based retailer of appliances and electronics filed for Chapter 11 bankruptcy March 6, just days after announcing plans to close 88 stores including 11 in South Florida, plus a distribution center in Miami and two other locations.

The bankruptcy filing raised the default risk on $156.8 million of loans in the form of commercial mortgage-backed securities (CMBS) on 10 properties where hhgregg has been operating, according to Morningstar.

Morningstar also reported that hhgregg is the sole occupant of its location in Boca Raton, the collateral for a CMBS loan with an outstanding balance of $6.96 million. The retailer’s address in Boca Raton is 20841 State Road 7, according to its website.

All of the other nine CMBS loans that Morningstar red-flagged are backed by retail properties where the loss of hhgregg as a tenant wiould lower the occupancy rate below 80 percent, “our threshold for at-risk occupancy,” the Chicago-based investment research firm reported.