Cash-strapped borrowers are increasingly giving keys back to lenders

Majority of nearly $3.9B in debt is backed by malls and hotels

(Getty, iStock)
(Getty, iStock)

UPDATED, Oct. 23, 2020, 5:15 p.m.: Many commercial mortgage-backed securities borrowers that are strapped for cash are trying to turn the keys over to their mezzanine lenders.

That’s according to a recent report from data provider Trepp, which found that the borrowers behind about $3.9 billion in outstanding CMBS debt across nearly 100 loans have “indicated a willingness” to give the collateral to their mezzanine lenders.

The loans include both small-dollar and large portfolio loans with principles exceeding $200 million, according to the report.

Nearly 65 percent of the loans Trepp found were secured by regional malls and limited- and full-service hotels.

One example is the owner behind the 212-key Eastgate Holiday Inn in Cincinnati, according to the report. The borrower “delivered written notice of unwillingness to further carry the loan payments and is cooperating in friendly foreclosure filing” on the $13.1 million CMBS loan secured by the hotel, according to special servicer notes.

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The coronavirus pandemic has exacerbated a retail apocalypse that was already battering several major mall owners. Barry Sterlicht’s Starwood Capital Group recently lost control of a seven-mall portfolio after a ratings downgrade on its bonds triggered a clause allowing bondholders to take control of the properties.

The pandemic has similarly pummeled the hotel industry and driven many lenders to try to put up their hotel loans for sale.

This mall and hotel carnage prompted the proposal of a bipartisan bill in Congress that would offer relief to struggling CMBS borrowers in the form of preferred equity. But borrowers would have to be able to show they were in good standing on mortgage payments prior to the pandemic to be eligible for funds. The legislation has yet to move forward.

Correction: An earlier version of this story misidentified the entity that lost control of a mall portfolio earlier this year. It is Starwood Capital Group, not Starwood Property Trust.