{"id":9311,"date":"2023-05-22T04:40:36","date_gmt":"2023-05-22T12:40:36","guid":{"rendered":"https:\/\/bmcre.freewebsite.org.in\/wp1\/?p=9311"},"modified":"2023-05-22T05:06:24","modified_gmt":"2023-05-22T13:06:24","slug":"alarms-ringing-for-office-market-bank-collapse-triggers-office-downgrade-bank-of-america-bullish-on-multifamily","status":"publish","type":"post","link":"https:\/\/bmcre.freewebsite.org.in\/wp1\/2023\/05\/22\/alarms-ringing-for-office-market-bank-collapse-triggers-office-downgrade-bank-of-america-bullish-on-multifamily\/","title":{"rendered":"Alarms Ringing for Office Market, Bank Collapse Triggers Office Downgrade, Bank of America Bullish on Multifamily"},"content":{"rendered":"\t\t
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A Weekly Look at the Commercial Mortgage-Backed Securities Business<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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The office tower at 1700 Lincoln St. holds a signature spot on Denver\u2019s skyline. (CoStar)<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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By\u00a0<\/strong>Mark Heschmeyer,\u00a0<\/strong>CoStar News\u00a0<\/strong>April 6, 2023 | 5:37 A.M.<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Alarms Ringing for Office Market:<\/strong>\u00a0When the loan on Philadelphia\u2019s largest stand-alone office building at 1500 Market St.\u00a0moved to special servicing in August,\u00a0it didn\u2019t register much alarm at the time, according to a new report by Morningstar Credit Information & Analytics. After all, the property’s performance metrics were significantly below underwritten expectations for a loan securitized in commercial mortgage-backed securities deal JPMCC 2020-MKST.<\/p>

But then, a loan on Wells Fargo Center at\u00a01700 Lincoln St.\u00a0in Denver that’s included in CMBS deal MSC 2019-NUGS transferred to special servicing after the borrower decided against seeking an extension in January. And in another case, Brookfield DTLA disclosed it\u00a0defaulted on loans for two downtown Los Angeles office towers\u00a0rather than enact an extension option.<\/p>

Now, capital markets are acutely aware that the office market is coming under new stresses.<\/p>

\u201cThe combination of uneven return-to-office patterns and an aging stock where the bifurcation between desirable and undesirable buildings is growing has people speculating that aging office properties may replace regional malls as the bane of CMBS investors\u2019 existence,\u201d Morningstar said in the report. \u201cProperty valuations are falling, and rising interest rates are putting further stress on properties that need to refinance in the near future.\u201d<\/p>

With corporate tenants reevaluating their need for space, Morningstar warned loan-to-value estimates and other traditional debt measures may no longer be adequate for determining the likelihood of refinancing or extending a loan.<\/p>

Morningstar said it\u2019s going to become more difficult to predict loan maturity defaults on top-tier office buildings typically owned by investors with deep pockets. And that doesn\u2019t bode well for older Class B properties either.<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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The failed Signature Bank occupies about 182,000 square feet of 68 S. Service Road in Melville, New York. (CoStar)<\/p>

Bank Collapse Triggers Office Downgrade:\u00a0<\/strong>Fitch Ratings has downgraded two classes of CMBS deal WFCM 2017-C38 due in part to troubled office building loans including one portfolio primarily occupied by the failed Signature Bank.<\/p>

The largest increase in loss expectations is on a Long Island, New York, office portfolio, which is secured by three suburban properties located at\u00a048,\u00a058 and\u00a068 S. Service Road\u00a0in Melville. The portfolio\u2019s major tenants include Signature leasing 23% of net rentable area with a portion of the lease set to expire a year from now, according to the latest monthly bondholder report. Signature leases about 182,000 square feet at 68 S. Service out of the 776,720-square-foot portfolio.<\/p>

The portfolio\u2019s previous largest tenant, Citibank, which leased 26% of the space, vacated upon lease expiration a year ago. The RXR Realty-affiliated borrower then leased a portion of that space to Signature. The bank expanded its space across the portfolio and signed a lease through April 2040, with an average rental rate of $33.35 per square foot, which is above the market rent of $29.49, according to Fitch.<\/p>

The bond-rating firm is estimating a base case loss of 10% to reflect the properties\u2019 location, exposure to Signature and other upcoming lease rollovers.<\/p>

RXR did not immediately respond to a request for comment from CoStar News.<\/p>

Bank of America Bullish on Multifamily:\u00a0<\/strong>The speedy response by the Federal Deposit Insurance Corp. to curtail last month\u2019s banking crisis steadied a once-volatile interest rate environment, and it may spur an improvement in multifamily CMBS performance, according to Alan Todd, CMBS strategist for Bank of America Securities.<\/p>

A rapid cheapening of multifamily CMBS bonds versus corporate bonds could be enough to bring some buyers back into the market, he said in a note to clients.<\/p>

With apartment fundamentals expected to remain resilient and given the improved market tone, Todd changed Bank of America Securities\u2019 stance on multifamily securitizations offered by Fannie Mae and Freddie Mac from sell to buy.<\/p>

\u201cAlthough we acknowledge the fact that credit concerns are likely to increase over the coming months, we think the recent banking sector induced stress has largely played out,\u201d Todd said.<\/p>

Among Fannie Mae and Freddie Mac\u2019s CMBS deals, many multifamily properties have realized good rent growth over the past several years, Todd said.<\/p>

\u201cIn addition, borrowers should have significantly less refinancing difficulty here than in other property types,\u201d he said.<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

A Weekly Look at the Commercial Mortgage-Backed Securities Business The office tower at 1700 Lincoln St. holds a signature spot on Denver\u2019s skyline. (CoStar) By\u00a0Mark Heschmeyer,\u00a0CoStar News\u00a0April 6, 2023 | 5:37 A.M. Alarms Ringing for Office Market:\u00a0When the loan on Philadelphia\u2019s largest stand-alone office building at 1500 Market St.\u00a0moved to special servicing in August,\u00a0it didn\u2019t register much alarm at the time, according to a new report by Morningstar Credit Information & Analytics. After all, the property’s performance metrics were significantly below underwritten expectations for a loan securitized in commercial mortgage-backed securities deal JPMCC 2020-MKST. But then, a loan on Wells Fargo Center at\u00a01700 Lincoln St.\u00a0in Denver that’s included in CMBS deal MSC 2019-NUGS transferred to special servicing after the borrower decided against seeking an extension in January. And in another case, Brookfield DTLA disclosed it\u00a0defaulted on loans for two downtown Los Angeles office towers\u00a0rather than enact an extension option. Now, capital markets are acutely aware that the office market is coming under new stresses. \u201cThe combination of uneven return-to-office patterns and an aging stock where the bifurcation between desirable and undesirable buildings is growing has people speculating that aging office properties may replace regional malls as the bane of CMBS investors\u2019 existence,\u201d Morningstar said in the report. \u201cProperty valuations are falling, and rising interest rates are putting further stress on properties that need to refinance in the near future.\u201d With corporate tenants reevaluating their need for space, Morningstar warned loan-to-value estimates and other traditional debt measures may no longer be adequate for determining the likelihood of refinancing or extending a loan. Morningstar said it\u2019s going to become more difficult to predict loan maturity defaults on top-tier office buildings typically owned by investors with deep pockets. And that doesn\u2019t bode well for older Class B properties either. The failed Signature Bank occupies about 182,000 square feet of 68 S. Service Road in Melville, New York. (CoStar) Bank Collapse Triggers Office Downgrade:\u00a0Fitch Ratings has downgraded two classes of CMBS deal WFCM 2017-C38 due in part to troubled office building loans including one portfolio primarily occupied by the failed Signature Bank. The largest increase in loss expectations is on a Long Island, New York, office portfolio, which is secured by three suburban properties located at\u00a048,\u00a058 and\u00a068 S. Service Road\u00a0in Melville. The portfolio\u2019s major tenants include Signature leasing 23% of net rentable area with a portion of the lease set to expire a year from now, according to the latest monthly bondholder report. Signature leases about 182,000 square feet at 68 S. Service out of the 776,720-square-foot portfolio. The portfolio\u2019s previous largest tenant, Citibank, which leased 26% of the space, vacated upon lease expiration a year ago. The RXR Realty-affiliated borrower then leased a portion of that space to Signature. The bank expanded its space across the portfolio and signed a lease through April 2040, with an average rental rate of $33.35 per square foot, which is above the market rent of $29.49, according to Fitch. The bond-rating firm is estimating a base case loss of 10% to reflect the properties\u2019 location, exposure to Signature and other upcoming lease rollovers. RXR did not immediately respond to a request for comment from CoStar News. Bank of America Bullish on Multifamily:\u00a0The speedy response by the Federal Deposit Insurance Corp. to curtail last month\u2019s banking crisis steadied a once-volatile interest rate environment, and it may spur an improvement in multifamily CMBS performance, according to Alan Todd, CMBS strategist for Bank of America Securities. A rapid cheapening of multifamily CMBS bonds versus corporate bonds could be enough to bring some buyers back into the market, he said in a note to clients. With apartment fundamentals expected to remain resilient and given the improved market tone, Todd changed Bank of America Securities\u2019 stance on multifamily securitizations offered by Fannie Mae and Freddie Mac from sell to buy. \u201cAlthough we acknowledge the fact that credit concerns are likely to increase over the coming months, we think the recent banking sector induced stress has largely played out,\u201d Todd said. Among Fannie Mae and Freddie Mac\u2019s CMBS deals, many multifamily properties have realized good rent growth over the past several years, Todd said. \u201cIn addition, borrowers should have significantly less refinancing difficulty here than in other property types,\u201d he said.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"elementor_theme","format":"standard","meta":{"footnotes":""},"categories":[52,48],"tags":[],"class_list":["post-9311","post","type-post","status-publish","format-standard","hentry","category-2023-q2","category-economic-news"],"_links":{"self":[{"href":"https:\/\/bmcre.freewebsite.org.in\/wp1\/wp-json\/wp\/v2\/posts\/9311","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bmcre.freewebsite.org.in\/wp1\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bmcre.freewebsite.org.in\/wp1\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bmcre.freewebsite.org.in\/wp1\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bmcre.freewebsite.org.in\/wp1\/wp-json\/wp\/v2\/comments?post=9311"}],"version-history":[{"count":4,"href":"https:\/\/bmcre.freewebsite.org.in\/wp1\/wp-json\/wp\/v2\/posts\/9311\/revisions"}],"predecessor-version":[{"id":9315,"href":"https:\/\/bmcre.freewebsite.org.in\/wp1\/wp-json\/wp\/v2\/posts\/9311\/revisions\/9315"}],"wp:attachment":[{"href":"https:\/\/bmcre.freewebsite.org.in\/wp1\/wp-json\/wp\/v2\/media?parent=9311"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bmcre.freewebsite.org.in\/wp1\/wp-json\/wp\/v2\/categories?post=9311"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bmcre.freewebsite.org.in\/wp1\/wp-json\/wp\/v2\/tags?post=9311"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}