CMBS conduit transactions incurred approximately $147 million in realized losses during October 2022 via the workout of distressed assets. CRED iQ identified 15 workouts classified as dispositions, liquidations, or discounted payoffs in October 2022. Of the 15 workouts, only two of the assets were resolved without a loss. Of the 13 workouts resulting in losses, severities for the month of September ranged from less than 1% to 100%, based on outstanding balances at disposition. Aggregate realized losses in October 2022 were more than twice the total of losses in September despite the same number of workouts. On a monthly basis, realized losses for CMBS conduit and SBLL transactions averaged approximately $138.5 million year-to-date.
By property type, workouts were concentrated in retail, accounting for eight of the 15 distressed resolutions. Lodging properties accounted for the next highest number of distressed workouts with four. Distressed workouts for retail properties had the highest total of aggregate realized losses (over $95 million) and the highest average loss severity (50%) across all property types. The largest individual realized loss from CRED iQ’s observations was from a $39.7 mortgage secured by Pierre Bossier Mall, a 265,347-sf portion of a regional mall located outside of Shreveport, LA. The loan transferred to special servicing in June 2020 and ultimately liquidated with realized losses to its CMBS trust of $27.9 million, equal to a 70% loss severity based on the loan’s outstanding balance prior to disposition.
The largest loss by severity was associated with Johnstown Galleria, a 700,000-sf regional mall located in western Pennsylvania. The retail property became REO in November 2021 and had $13.6 million in outstanding debt prior to disposition. The debt was formerly secured by a leased fee interest in a 46-acre land parcel, which excluded the improvements of the mall at the time — the mall operated with a ground lease that was terminated after payment default. The REO asset, inclusive of the land and the improvements, was liquidated with a 100% loss severity.
The largest workout by outstanding debt amount was the liquidation of a leasehold interest in Hilton Times Square, a 460-key full-service hotel located in Manhattan, NY. The REO property was reportedly sold for $85 million to a group that included Apollo Global Management and hotel operations reopened this month for the first time since a pandemic-induced closure in early 2020. The asset had outstanding debt of $75.6 prior to its liquidation and was resolved with a 30% loss severity, accounting for liquidation expenses in excess of $26 million.
Excluding defeased loans, there was approximately $7.3 billion in securitized debt among CMBS conduit, SBLL, and Freddie Mac securitizations that was paid off or liquidated in October, which was approximately a 5% increase compared to $7 billion in September 2022. In October, 4.7% of the loan resolutions were categorized as dispositions, liquidations, or discounted payoffs. The percentage of distressed workouts was 3.6% in the prior month. Approximately 30% of the loans were paid off with prepayment penalties, which was a significant decline compared to the prior month.
By property type, multifamily had the highest total of outstanding debt pay off in September with 49% of the total by balance. Office had the next highest outstanding debt pay off with 20% of the total. Among the largest individual payoffs was a $700 million mortgage secured by Blackstone’s Center for Life Science, a 704,159-sf life sciences building in Boston, MA that features office and lab space. The loan was refinanced in October with a $750 million mortgage.
About CRED iQ
CRED iQ is a commercial real estate data, analytics, and valuation platform designed to unlock investment, financing, and leasing opportunities. CRED iQ provides real-time property, loan, tenant, ownership, and valuation data for over $2.0 trillion of commercial real estate.