Announcing WFCM 2024-5C1

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July 9, 2024

A CRED iQ Preliminary Analysis

DATA HEREIN PROVIDED TO CRED IQ IS FROM A PRELIMINARY PROSPECTUS AND MAY BE AMENDED OR SUPPLEMENTED PRIOR TO TIME OF SALE

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Deal Overview

The Wells Fargo Commercial Mortgage Trust 2024-5C1 is a significant new issue CMBS deal with an approximate aggregate certificate balance of $646.8 million, backed by a mortgage pool totaling around $731.9 million. This transaction is managed by Wells Fargo Securities, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, and UBS Securities LLC, with additional support from co-managers Academy Securities, Drexel Hamilton, and Siebert Williams Shank. The offering consists of 32 loans secured by 48 properties, presenting a diversified portfolio that spans various property types such as multifamily, office, mixed-use, and hospitality. The properties are geographically dispersed, ensuring a robust risk mitigation strategy for investors.

Key Metrics

Key metrics for this CMBS deal include a weighted average loan-to-value (LTV) ratio of 58.6% and a weighted average mortgage interest rate of 6.91%. The loan pool is structured to include a mix of amortizing and interest-only loans, with 24% of the mortgage pool having scheduled amortization and the remaining 76% providing for interest-only payments throughout the loan term. This mix is designed to offer flexibility and stability in cash flow, appealing to a broad range of investors seeking both short-term and long-term returns. Additionally, the pool features a weighted average debt service coverage ratio (DSCR) of 1.53x and a weighted average net operating income (NOI) debt yield of 11.9%, indicating strong underwriting standards and financial performance.

Geography & Top Assets

The transaction highlights include properties concentrated in major markets like New York City, Houston, and Los Angeles with significant assets such as the 9950 Woodloch suburban office property in Houston and the 640 5th Avenue mixed-use (office/retail) property in New York. The deal is set to close on July 25, 2024, with the master servicer being Wells Fargo Bank and the special servicer being Argentic Services Company LP. The certificates are expected to be rated by Fitch Ratings, Kroll Bond Rating Agency, and Moody’s Investors Service, providing additional assurance of the deal’s quality and reliability. This CMBS offering presents a well-structured investment opportunity with diverse property types and geographic distribution, designed to deliver stable returns and mitigate risks effectively.

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For subscribers to CRED iQ

About CRED iQ

CRED iQ is a market data provider that offers a robust suite of data and software solutions tailored for commercial real estate and finance professionals. With over $2.3 trillion of CRE loans, CRED iQ delivers instant access to a comprehensive range of financial data and analytics for millions of properties in every market. CRED iQ’s data and analytical capabilities are instrumental in helping investors, lenders and brokers make informed and strategic decisions critical to their business.

If you would like to learn more about CRED iQ’s products and services, please contact team@cred-iq.com or (215) 220-6776.

THE DATA, INFORMATION AND/OR RELATED MATERAL (“DELIVERABLES”) IS BEING SOLD IN AS-IS/WHERE-AS CONDITION. CRED-IQ MAKES NO REPRESENTATION OR WARRANTY AS TO QUALITY OR ACCURACY OF SUCH DELIVERABLES BEING PURCHASED, WHETHER EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTE, OR OTHERWISE, AND CRED-IQ SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE, TECHNICAL PERFORMANCE, AND NON-INFRINGEMENT. WITHOUT LIMITING THE FOREGOING, YOU AS CUSTOMER ACKNOWLEDGE THAT YOU HAVE NOT AND ARE NOT RELYING UPON ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, OR UPON ANY REPRESENTATION OR WARRANTY WHATSOEVER AS TO THE DELIVERABLES IN ANY REGARD WHATSOEVER, AND ACKNOWLEDGE THAT CRED-IQ MAKES NO, AND HEREBY DISCLAIMS ANY, REPRESENTATION, WARRANTY OR GUARANTEE THAT THE PURCHASE, USE OR COMMERCIALIZATION OF ANY DELIVERABLES WILL BE USEFUL TO YOU OR FREE FROM INTERFERENCE. BY ACCEPTANCE OF THE DELIVERABLES, YOU HEREBY RELEASE CRED-IQ AND ITS AFFILIATES AND AGENTS FROM ALL CLAIMS, DAMAGES AND LIABILITY ARISING HEREUNDER.

43% Average Decline in Valuations for Distressed Properties

By

Michael Haas

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July 3, 2024

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New York City and Office Dominate 1^st Half 2024 Valuation Declines

As we pass the halfway point in 2024, CRED iQ analyzed properties that were re-appraised this year and in 2023. Our research team wanted to expose trending and any associated insights of what lies ahead in the second half. Each of these properties were either delinquent or with the special servicer and received updated appraisals in 2023 or 2024.

In total, the average decline in value compared to the original valuation at issuance was -43%, an increase of 140 basis points over our Q4 2023 print.

Our analysis looked at 2024 year-to-date performance and then created rankings for both 2023 and 2024 combined. The combined view offers an important dimension as many key properties in 2024 were last appraised in 2023.

Sector Perspectives

The top three largest overall declines, not surprisingly, were in the Office sector which also saw the largest single property valuation decline. Within our sample, 2024 declines averaged a 53%
The retail sector was not far behind, notching an average valuation decline of 52%, along with the fourth largest single asset reduction across all property types
The hotel sector saw an average of 40% valuation reduction
Comparing our Q4 2023 report with this analysis, the average multifamily valuation decline remained mostly flat at 35%. Meanwhile, industrial improved from 32% declines to 10% in this current print.

Individual Property Performance

Looking across the top 10 declining assets for both 2023 and 2024, 6 are office properties, 2 are in the retail sector and 2 are classified as “other”. Half of the top 10 are located in New York City, 2 in California (one each in Los Angeles and San Francisco), and the Midwest was represented by 2 properties in Chicago and 1 in Minneapolis.

With a touch of irony, we take note that the same address digits for the #1 overall asset decliner 1740 Broadway, appear with newcomer 1407 Broadway which came in at #6 in the combined analysis.

We see a number of familiar names on the top ten list for properties appraised in 2024 including the number one entry the Gas Company Tower—an office property in Los Angeles and 229 West 43^rd Street which comes in at #3. Just like the combined list, 5 of the top 10 properties are in the office sector, followed by 3 in retail and 2 in the other category.

About CRED iQ

CRED iQ is an official market data provider for the Commercial Real Estate and financial industries. Powered by over $2.3 trillion in loan and transaction data that includes all property types and geographies.

CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition & lending opportunities, market analysis, underwriting, and risk management.

Announcing BMARK 2024-V8

By

Michael Haas

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June 24, 2024

0

A CRED iQ Preliminary Analysis

DATA HEREIN PROVIDED TO CRED IQ IS FROM A PRELIMINARY PROSPECTUS AND MAY BE AMENDED OR SUPPLEMENTED PRIOR TO TIME OF SALE

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Access Loan Details

For subscribers to CRED iQ

About CRED iQ

CRED iQ is an official market data provider for the Commercial Real Estate and financial industries. Powered by over $2.3 trillion of audited loan and transaction data that includes all property types and geographies.

CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition & lending opportunities, market analysis, underwriting, and risk management.

If you would like to learn more about CRED iQ’s products and services, please contact team@cred-iq.com or (215) 220-6776.

THE DATA, INFORMATION AND/OR RELATED MATERAL (“DELIVERABLES”) IS BEING SOLD IN AS-IS/WHERE-AS CONDITION. CRED-IQ MAKES NO REPRESENTATION OR WARRANTY AS TO QUALITY OR ACCURACY OF SUCH DELIVERABLES BEING PURCHASED, WHETHER EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTE, OR OTHERWISE, AND CRED-IQ SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE, TECHNICAL PERFORMANCE, AND NON-INFRINGEMENT. WITHOUT LIMITING THE FOREGOING, YOU AS CUSTOMER ACKNOWLEDGE THAT YOU HAVE NOT AND ARE NOT RELYING UPON ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, OR UPON ANY REPRESENTATION OR WARRANTY WHATSOEVER AS TO THE DELIVERABLES IN ANY REGARD WHATSOEVER, AND ACKNOWLEDGE THAT CRED-IQ MAKES NO, AND HEREBY DISCLAIMS ANY, REPRESENTATION, WARRANTY OR GUARANTEE THAT THE PURCHASE, USE OR COMMERCIALIZATION OF ANY DELIVERABLES WILL BE USEFUL TO YOU OR FREE FROM INTERFERENCE. BY ACCEPTANCE OF THE DELIVERABLES, YOU HEREBY RELEASE CRED-IQ AND ITS AFFILIATES AND AGENTS FROM ALL CLAIMS, DAMAGES AND LIABILITY ARISING HEREUNDER.

Loan Modifications Swell 195% in 12 Months: CRED iQ

By

Michael Haas

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June 21, 2024

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2024 Loan Modifications, Led by CRE CLO are on Track to Surpass a Record Setting 2023.The CRED iQ Research team has been fielding requests for deeper analysis on loan modifications during this period of elevated interest rates and levels of delinquency. Loan modifications have surged as borrowers worked with lenders to achieve loan extensions and other alterations to their loan covenants.

Approximately $22 billion in loans have been modified in the past 12 months ending May 31, 2024. Over $9 billion in loans have already been modified this year through May, placing 2024 squarely on a path to a record setting year of loan modifications. This compares to a total of $16.8 billion that was modified in 2023.

The notion of “pretend and extend” is totally understandable as loans reach maturity in this challenging rate environment. As of May 31, 2024, the average volume of loan modifications averaged $1.8 billion. April was the busiest month which saw over $3 billion in CRE loan modifications.

Nearly half of the modification types (46.2%) compiled from CRED iQ loan data fell into the Maturity Date Extension category. CRE CLO loans continued to dominate the loan modifications by deal type with YTD cumulative balances of $4 billion, representing 44% of all modifications in 2024. The SBLL deal type notched a second-place finish at $3.3 billion (36.4%) YTD through May, followed by conduit loans with YTD totals of $1.6 billion (17.4%).

The number of modifications in 2023 more than doubled compared to 2022. So far in 2024 the CRE CLO category is on track to easily outpace its 2023 print while all other categories run rates are tracking closer to the 2023 benchmarks.

According to CRED iQ’s 2024 CRE Maturity Outlook, 2024 will see $210 billion in securitized maturities—likely fueling the demand for loan modifications in the second half of 2024.

Some of the largest loan modifications thus far in 2024 include:

Phoenix Corporate Tower, a 457,878 SF office, is backed by a $33.7 million loan (originally $38.0M). Due to its upcoming maturity in April 2024, the loan was added to the servicer’s watchlist in January 2024. The loan was modified in April 2024, extending the maturity to July 2025. The office tower is in the Central Corridor submarket of Phoenix and was appraised for $42.5 million ($93/sf) at underwriting in February 2019. A 0.83 DSCR and 78.0% occupancy was reported as of March 2024.

The $63.9 million loan backed by the 412-unit Retreat at Riverside multifamily property in the Atlanta market was modified in May 2024. The loan was originally scheduled to mature in May 2024 but was extended by two months to July 2024. Life safety issues and upcoming maturity lead to the loan being on the servicer’s watchlist since June 2023. At underwriting in February 2021, the asset was appraised at $81.3 million ($197,330/unit). The property was 93.4% occupied with a 0.78 DSCR as of March 2024.

About CRED iQ

CRED iQ is an official market data provider for the Commercial Real Estate and financial industries. Powered by over $2.3 trillion in loan and transaction data that includes all property types and geographies.

CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition & lending opportunities, market analysis, underwriting, and risk management.

Announcing BBCMS 2024-5C27

By

Michael Haas

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June 18, 2024

0

A CRED iQ Preliminary Analysis

DATA HEREIN PROVIDED TO CRED IQ IS FROM A PRELIMINARY PROSPECTUS AND MAY BE AMENDED OR SUPPLEMENTED PRIOR TO TIME OF SALE

Access the Full Data

For subscribers to CRED iQ

About CRED iQ

CRED iQ is an official market data provider that is powered by over $2.3 trillion of audited loan and transaction data that includes all property types and geographies.

CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition & lending opportunities, market analysis, underwriting, and risk management.

If you would like to learn more about CRED iQ’s products and services, please contact team@cred-iq.com or (215) 220-6776.

THE DATA, INFORMATION AND/OR RELATED MATERAL (“DELIVERABLES”) IS BEING SOLD IN AS-IS/WHERE-AS CONDITION. CRED-IQ MAKES NO REPRESENTATION OR WARRANTY AS TO QUALITY OR ACCURACY OF SUCH DELIVERABLES BEING PURCHASED, WHETHER EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTE, OR OTHERWISE, AND CRED-IQ SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE, TECHNICAL PERFORMANCE, AND NON-INFRINGEMENT. WITHOUT LIMITING THE FOREGOING, YOU AS CUSTOMER ACKNOWLEDGE THAT YOU HAVE NOT AND ARE NOT RELYING UPON ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, OR UPON ANY REPRESENTATION OR WARRANTY WHATSOEVER AS TO THE DELIVERABLES IN ANY REGARD WHATSOEVER, AND ACKNOWLEDGE THAT CRED-IQ MAKES NO, AND HEREBY DISCLAIMS ANY, REPRESENTATION, WARRANTY OR GUARANTEE THAT THE PURCHASE, USE OR COMMERCIALIZATION OF ANY DELIVERABLES WILL BE USEFUL TO YOU OR FREE FROM INTERFERENCE. BY ACCEPTANCE OF THE DELIVERABLES, YOU HEREBY RELEASE CRED-IQ AND ITS AFFILIATES AND AGENTS FROM ALL CLAIMS, DAMAGES AND LIABILITY ARISING HEREUNDER

CRE CLO Distress Rate Widens to 9.74%

By

Michael Haas

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June 14, 2024

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The CRED iQ research team continued its examination of the CRE CLO ecosystem as the distress rate reached 9.74%, an increase of 114 basis points since our May 3^rd print. This includes any loan reported 30 days delinquent, past their maturity, specially serviced, or a combination of these.

CRED iQ consolidated all of the loan-level performance data for every outstanding CRE CLO loan to measure the underlying risks associated with these transitional assets. Many of these loans were originated in 2021 at times where cap rates were low, valuations high, low interest rates, and are starting to run into maturity issues given the spike in rates.

Some of the largest issuers of CRE CLO debt over the past five years include MF1, Arbor, LoanCore, Benefit Street Partners, Bridge Investment Group, FS Rialto, and TPG.

As in our May report, our research team analyzed ~$78 billion in active CRE CLO loans (an increase of ~$3 billion from the May report) to better understand current distress levels and exposing any potential forecasting bellwether metrics. Along those lines we further explored 1) Loans that have been added to the servicer watchlist. 2) The triggers that caused the watchlist designation.

Just over 36.5% of CRE CLO loans are currently on the servicers watchlist (a decrease of 2.1% since our May report). Combining the 9.74% distress rate with the 36.5% watchlist percentage, CRED iQ calculates 46.2% of these loans have some level of issues with their loans – generally flat to May’s 46.3% print.

As mentioned in our May report, our analysis exposes a wide gap between the distress and watchlist rates which could imply that the special serving & delinquency percentages may be likely to grow.

By property type, no surprise that office sector loans maintained their dominant lead –notching a 16.8% distressed rate. Multifamily’s distress rate of 13.3% earned them a second-place finish, followed by retail and industrial at 7.8% and 4.7% respectively. Hotel loans were not far behind industrial at 4.1%. (the “other” loan category saw a 6% distress rate).

Breaking down the distress rate by payment status, 29.7% of loans were designated as performing matured, with non-performing matured not far behind at 23.9%. (combined, performing and non-performing matured loans comprise over half of the distressed universe (53.6%). 12.8% of loans have reached 90+ days delinquent, and finally 11.7% of distress loan payment status are current.

Examining the watchlist breakdown by credit reason reveals that 37.8% of loans are on the watchlist due to pending maturing or ARD. Floating rate DSCR triggers are broken into two categories (one with “+others”) and the second as a pure DSCR trigger category. Combined, they account for 28.2% of the watchlist loans. Other notable categories include property affected by safety issue or potentially harmful environmental issue (6.5%) and occupancy decrease (excludes lodging) (5.6%)

The vast majority of the ~$78 billion in CRE CLO loans are structured with floating rates with 3-year loan terms equipped with loan extension options if certain financial hurdles are met.

Sign Up for CRED iQ Today

About CRED iQ

CRED iQ is an official market data provider for the Commercial Real Estate and financial industries. Powered by over $2.3 trillion in loan and transaction data that includes all property types and geographies.

CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition & lending opportunities, market analysis, underwriting, and risk management.

CRED iQ Expands Leadership Team with New Chief Client Officer

By

Michael Haas

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June 13, 2024

0

CRED iQ is excited to announce the addition of Nikki Kirk as Chief Client Officer. In this role, Kirk will oversee all client relationships and continue to build CRED iQ’s Client Success team. She will also play a critical role in strategic opportunities for the company.

“We are thrilled to welcome Nikki to CRED iQ as our client base continues to grow,” said Mike Haas, Founder and CEO of CRED iQ. “Her experience and leadership will be crucial to our future success. We are lucky to have her joining our senior team.”

Bringing a wealth of experience in the CRE ecosystem, with a notable focus on data and analytics, Nikki Kirk’s background includes positions at top companies such as CBRE, Gibson Dunn, and Colliers. Most recently, she served as Chief Strategy Officer at Parceled, a highly innovative Real Estate Data and Enablement business.

Chris Aronson, Chief Commercial Officer, added “Nikki and I worked together previously, and I quickly realized her ability to connect and collaborate with clients was truly exceptional. We look forward to her leadership as she plays a central role in shaping the future of CRED iQ.”

Kirk also expressed her excitement about joining the company, stating “I am delighted to join CRED iQ during this exciting period of growth. I look forward to working closely with the CRED iQ team and, most importantly, partnering with our clients to continue building an innovative product.”

Nikki Kirk will officially join the CRED iQ team on June 10th and will also be in attendance at the upcoming CREFC Annual Meeting in New York City, where she will have the opportunity to meet and greet clients.

Sign Up for CRED iQ Today

About CRED iQ
CRED iQ is an official market data provider for the commercial real estate and financial industries. The platform is powered by over $2.3 trillion of audited loan and transaction data that includes all property types and geographies.

CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition & lending opportunities, market analysis, underwriting, and risk management.

The CRED iQ Distress Rate Reaches its Third Consecutive Record

By

Michael Haas

-

June 7, 2024

0

The CRED iQ distress rate inched up 14 basis points in May to 8.49%, setting a third straight record high. The CRED iQ team evaluated payment statuses reported for each loan, along with special servicing status as part of our monthly distress update. CRED iQ’s special servicing rate now stands at 8.09% and the CRED iQ delinquency rate is at 5.8% for this month.

The sector with the largest increase in distress this month was from hotels. The hotel sector jumped from 8.7% to 9.4% in May. One example of a recent hotel default includes the Grand Wailea hotel, which is backed by a $510.5 million loan with an additional $289.5 million in mezzanine debt. This was the primary driver of the increased distressed rates in hotels this month. The loan fell delinquent (performing matured) as it failed to pay off at its May 2024 maturity date. Commentary indicates there are five, one-year maturity extension options. The 776-room, oceanfront, luxury resort is located on the south shore of Wailea, Maui. The asset was performing with a below breakeven DSCR of 0.93 and 49.9% occupancy as of year-end 2023.

Retail regains its leadership position in May as the office segment shaved 6 basis points to 11.1% following five straight months of increases. Just two basis points separate the retail and office segments. Retail and office continue their duel for the highest level of distress.

Similarly, the retail segment a saw decrease in their distress rate of 6 basis points to 11.3% following an increase from 9.5% to 11.9% in the April print.

Industrial and self-storage continue their steady track records –both operating at sub 1% for all but one of the last 12 months.

Following a fairly dramatic distress rate increase in April, the Multifamily segment shaved one basis point to 7.1%. The April increase was largely attributable to a $1.75 billion loan ($561,000/unit) backed by Parkmerced, a 3,221-unit multifamily property in San Francisco. Imminent non-monetary default caused the loan to transfer to the special servicer with the looming maturity date of December 2024.

Looking at payment status, 24.4% of the loans are current, with an additional 2% and 5.5% attributable to Late (but in the grace period) and Late (but less than 30 days) respectively. Once again, the largest category was Non-Performing Matured at 35%, followed by 90+ Days Delinquent at 15.6% and Performing Matured at 11.8%.

CRED iQ’s distress rate aggregates the two indicators of distress – delinquency rate and specially serviced rate – yielding the distress rate The index includes any loan with a payment status of 30+ days or worse, any loan actively with the special servicer, and includes non-performing and performing loans that have failed to pay off at maturity.

It’s important to note that CRED iQ’s distress rate factors in all CMBS properties that are securitized in conduits and single-borrower large loan deal types. CRED iQ tracks Freddie Mac, Fannie Mae, Ginnie Mae, and CRE CLO loan metrics in separate analyses.

Sign Up for CRED iQ Today

About CRED iQ

CRED iQ is an official market data provider for the Commercial Real Estate and financial industries. Powered by over $2.3 trillion in loan and transaction data that includes all property types and geographies.

CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition & lending opportunities, market analysis, underwriting, and risk management.

Announcing BANK 2024-BNK47

By

Michael Haas

-

June 6, 2024

0

A CRED iQ Preliminary Analysis

DATA HEREIN PROVIDED TO CRED IQ IS FROM A PRELIMINARY PROSPECTUS AND MAY BE AMENDED OR SUPPLEMENTED PRIOR TO TIME OF SALE

Access the Full Data

For subscribers to CRED iQ

About CRED iQ

CRED iQ is an official market data provider that is powered by over $2.3 trillion of audited loan and transaction data that includes all property types and geographies.

CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition & lending opportunities, market analysis, underwriting, and risk management.

If you would like to learn more about CRED iQ’s products and services, please contact team@cred-iq.com or (215) 220-6776.

THE DATA, INFORMATION AND/OR RELATED MATERAL (“DELIVERABLES”) IS BEING SOLD IN AS-IS/WHERE-AS CONDITION. CRED-IQ MAKES NO REPRESENTATION OR WARRANTY AS TO QUALITY OR ACCURACY OF SUCH DELIVERABLES BEING PURCHASED, WHETHER EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTE, OR OTHERWISE, AND CRED-IQ SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE, TECHNICAL PERFORMANCE, AND NON-INFRINGEMENT. WITHOUT LIMITING THE FOREGOING, YOU AS CUSTOMER ACKNOWLEDGE THAT YOU HAVE NOT AND ARE NOT RELYING UPON ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, OR UPON ANY REPRESENTATION OR WARRANTY WHATSOEVER AS TO THE DELIVERABLES IN ANY REGARD WHATSOEVER, AND ACKNOWLEDGE THAT CRED-IQ MAKES NO, AND HEREBY DISCLAIMS ANY, REPRESENTATION, WARRANTY OR GUARANTEE THAT THE PURCHASE, USE OR COMMERCIALIZATION OF ANY DELIVERABLES WILL BE USEFUL TO YOU OR FREE FROM INTERFERENCE. BY ACCEPTANCE OF THE DELIVERABLES, YOU HEREBY RELEASE CRED-IQ AND ITS AFFILIATES AND AGENTS FROM ALL CLAIMS, DAMAGES AND LIABILITY ARISING HEREUNDER

Ratings Remorse? An Inside Look into the $191 million loss of the “AAA” NYC Office Tower

By

Michael Haas

-

May 31, 2024

0

Is 1740 Broadway an Anomaly, or an Indication of What is Ahead for SBLL?

This week, the CRED iQ research team conducted a thorough data analysis for the Single Borrower, Large Loan (“SBLL”) segment to better understand the asset, its exposure to market risks, and loan performance within this category that is under extreme volatility.

Our readers were surprised by last week’s reporting that AAA bond investors in 1740 Broadway, a loan backed by a 621,000-SF office building in New York City received less than three quarters of their original investment back earlier this month. This marks the first such loss of the post-crisis era (according to Barclays). Gross sales proceeds from the distressed sale of 1740 Broadway amounted to $179.5 million ($289/SF), which ended up being slightly above the most recent as-is appraised value of $175 million ($282/SF) and significantly below its updated stabilized appraised value $465 million ($749/SF). The asset originally appraised for $605 million ($1,002/SF) in December 2014, when the property was 98.3% occupied.

Special servicing workout fees, servicer advances, and other expenses totaled $62.3 million, which left only $117.2 million of net proceeds available to the Class-A investors, which had an unpaid principal balance of $157.5 million. This resulted in a $40.3 million loss (25.6% loss severity) to the A tranche and wiped out all subordinate tranches. CRED iQ and Commercial Observer first broke the news in March 2022 of the upcoming transfer of this loan to the special servicer as Blackstone signaled it was no longer interested in the property and would be handing the keys back. Despite common market knowledge of the degradation of value, 7% occupancy, and the unwillingness of Blackstone to invest in the stabilization of the building, the rating agencies maintained lofty ratings as recently as November 2023, where Morningstar DBRS / DBRS Morningstar had a high “A” rating and S&P had a “BB+” rating for the saftest Class A bonds, which were originally rated AAA.

Flawed Ratings by Morningstar/DBRS and S&P?

Are last week’s revelations an anomaly, or an indication of what is ahead for the AAA SBLL sector? Are these two rating agencies hesitant to downgrade their AAA rated classes since they have weak market share compared to Fitch & Moody’s? Are they still texting each other about key ratings decisions trying to stay off the record? Will the SEC fine them again? Only time will tell. Our analysis seeks to answer that fundamental question. We examined the overall health of current SBLL deals. Our team then looked at some of the issues that impacted 1740 Broadway – such as office sector exposure. CRED iQ provides real-time data and independent research with valuation and refinance models.

Office Exposure

Looking more deeply into the segment, we explored the office exposure within the SBLL category. Across the entire SBLL deal universe, 152 deals have office exposure. A total of 629 office buildings are currently financed via SBLL deal structures with a total allocated loan balance of $67.5 billion.

Current State of SBLL Loans

Across the SBLL landscape, our analysis found that ~15% of all loans are reporting a DSCR below 1.10. 13.5% of SBLL loans operate at sub-breakeven DSCR levels. A few examples from CRED iQ data uncovered the Willis Tower in Chicago, that recently reported a 0.28 DSCR with 90.7% occupancy and also 5 Bryant Park in NYC, that reported a 0.73 DSCR with 81.3% occupancy. Stay tuned for an analysis of office buildings in distress that have not received updated appraisals.

CRED iQ Free Trial Access

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.