Yelp Office Closures

July 6, 2022

In this week’s WAR Report, CRED iQ calculated updated valuations for two office buildings in Manhattan and Chicago with exposure to Yelp as a tenant. Multiple news outlets, including Globe St., The Real Deal, and Commercial Observer, reported in late-June 2022 that online service review provider Yelp plans to close offices in three gateway cities and downsize its presence in other office locations. Yelp plans to close offices in DC, New York City, and Chicago and will also reduce its footprint at a Scottsdale, AZ office building. In a June 23^rd blog post, the CEO of Yelp stated that the offices would close on July 29^th and the company would focus on a fully remote strategy. The shift to remote work is one of the many headwinds the office sector is facing, in addition to rising availability rates and the prospects of a recession.

One of the properties with a Yelp office slated for closure —11 Madison Avenue in Manhattan, NY — secures $1.075 billion in CMBS debt that is scheduled to mature in September 2025. Additionally, theMART in Chicago, IL formerly secured a $675 million commercial mortgage that was paid off in May 2021. CRED iQ reviewed Yelp’s footprint at both properties and the subsequent impacts of the firm’s departure. Similar to our June 21 Report discussing the impacts of Revlon’s bankruptcy on the commercial mortgage secured by One New York Plaza, the losses of revenue from Yelp on a stand-alone basis are unlikely to put either of these two assets in distress. However, CRED iQ’s base-case valuations considered lower projected cash flows from the loss of Yelp as well as the need to backfill the available space.

CRED iQ valuations factor in base-case (most likely), downside (significant loss of tenants), and dark scenarios (100% vacant). Base-case valuations are presented below. For full access to the valuation reports as well as full CMBS loan reporting, including detailed financials, updated tenant information, and borrower contact information, sign up for a free trial here.

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11 Madison

2.3 million sf, CBD Office, Manhattan, NY [View Details]

Yelp is the third-largest tenant at 11 Madison Avenue pursuant to a lease that expires in April 2025. Since loan origination in 2015, Yelp has occupied floors 14 and 16 (152,232 sf) of the 29-story building and pays base rent of approximately $14.5 million per year for the space, equal to $95/sf. Yelp’s base rent is approximately 14% higher than the average asking rent for the Midtown South submarket as of June 2022, according to CBRE. The firm expanded its space into the 17th floor in 2017 for a total footprint of 191,797 sf, equal to 8.4% of the property’s NRA. In addition to base rent, Yelp also pays reimbursements for operating expenses and real estate taxes.

Eleven Madison was nearly 100% occupied as of March 2022. The property is anchored by Credit Suisse with a lease accounting for 55% of NRA in place through May 2037. Additionally, Sony leases approximately 25% of the building through January 2031. Although, occupancy could potentially decline to approximately 92% with the departure of Yelp, 11 Madison offers some of the largest floor plates in Manhattan and has several advantages over lower quality offices in attracting replacement tenants. Those advantages are necessary in a Midtown South office market with an 18.7% availability rate. Subsequently, occupancy or lease rollover risk do not appear to be near-term credit risk concerns for the property or loan. For the full valuation report and loan-level details, click here.

Property Name	11 Madison
Address	^{11 Madison Avenue New York, NY 10010}
MSA	^{New York-Northern New Jersey-Long Island, NY-NJ-PA}
Market	Midtown South
Submarket	Madison/Union Square
Property Type	Office
Size	2,285,043 sf
Loan Balance	$1,075,000,000
Interest Rate	3.56%
Maturity Date	9/6/2025
Most Recent Appraisal	$2,350,000,000 ($1,028/sf)
Most Recent Appraisal Date	7/1/2015

CRED iQ Base-Case Value	$2,509,000,000 ($1,098/sf)
CRED iQ Base-Case LTV	43%

theMART

3.6 million sf, CBD office, Chicago, IL [View Details]

Yelp is the fourth-largest tenant at theMART (formerly known as Chicago Merchandise Mart) pursuant to a lease that expires in July 2023. Yelp occupied 132,044 sf on the fifth floor, which was equal to approximately 3.6% of the property’s NRA. The firm paid base rent of approximately $37.29/sf.

Unlike the stable rent roll of 11 Madison, the tenant roster of theMART has some uncertainty. Occupancy at the property was approximately 89% as of January 2022 but has steadily declined since 2017 after multiple tenants vacated and moved to office space in Fulton Market, a highly favored submarket in the Chicago CBD.

The property’s largest tenant, Motorola Mobility, leases 609,071 sf (17% of the property’s NRA) pursuant to a lease that expires in August 2028. However, Motorola Mobility had a lease termination option that would have been effective September 1, 2023, but notice was due by March 1, 2022. In past years, Motorola Mobility has been actively subleasing portions of its space. It was unconfirmed if the termination option was executed. The building’s second-largest tenant, MTM-MM LLC (6% of NRA), is an affiliate of Vornado Realty Trust, which owns the property.

Altogether, office space only accounts for 55% of the property’s NRA. The property is widely recognized for its showroom and tradeshow space, which accounts for approximately 42% of the property’s NRA. However, showroom space has traditionally struggled in recessionary environments. Operational performance of theMART is worth monitoring given the above developments and observations. For the full valuation report and loan-level details, click here.

Property Name	theMART
Address	^{222 W Merchandise Mart Plaza Chicago, IL 60654}
MSA	^{Chicago-Naperville-Joliet, IL-IN-WI}
Market	Chicago CBD
Submarket	River North
Property Type	Mixed Use (Office/Showroom)
Size	3,648,777 sf
Most Recent Appraisal	$1,640,000,000 ($449/sf)
Most Recent Appraisal Date	8/30/2016

CRED iQ Base-Case Value	$1,012,000,000 ($277/sf)

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CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers to CRED iQ use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities. Our data platform is powered by over $2.0 trillion of CMBS, CRE CLO, SBLL, Ginnie Mae, FHA/HUD, and Freddie Mac loan and property data.

July 2022 Delinquency Report

CRED iQ

June 30, 2022

*DQ = All delinquent CMBS loans in the conduit and SASB universe, including specially serviced and non-specially serviced loans*
*SS = All specially serviced CMBS loans in the conduit and SASB universe, including current, delinquent and REO*
*DQ + SS = All distressed CMBS loans in the conduit and SASB universe that are delinquent, specially serviced, or a combination of both*

The CRED iQ delinquency rate for CMBS declined modestly during the June 2022 remittance period. Overall delinquency has declined consecutively in each month since June 2020. This month, the delinquency rate, equal to the percentage of all delinquent specially serviced loans and delinquent non-specially serviced loans, for CRED iQ’s sample universe of $500+ billion in CMBS conduit and single asset single-borrower (SASB) loans was 3.30%, which compares to last month’s rate of 3.32%. CRED iQ’s special servicing rate, equal to the percentage of CMBS loans that are with the special servicer (delinquent and non-delinquent), declined month-over month to 4.64% from 5.17%. The CMBS special servicing rate has declined for seven consecutive months. Aggregating the two indicators of distress – delinquency rate and special servicing rate – into an overall distressed rate (DQ + SS%) equals 4.95% of CMBS loans that are specially serviced, delinquent, or a combination of both. The overall distressed rate declined compared to the prior month rate of 5.33%. These distressed rates typically track slightly higher than special servicing rates as most delinquent loans are also with the special servicer.

By property type, the delinquency rate increased in June for the office and industrial sectors. The delinquency rate for loans secured by office properties was 1.72% as of June 2022, which was an increase compared to 1.60% in the previous month. However, office delinquency is still down by approximately 47 bps from a year ago. A major contributor to the increase in office delinquency was the $231 million 260 and 261 Madison loan, which failed to pay off at maturity on June 11, 2022. According to a March 2022 Commercial Observer article, The Sapir Organization as loan sponsor was marketing the 923,277-sf office property for sale, although updated servicer commentary indicates a refinance is also being considered.

Delinquency rates declined in June 2022 for the retail, lodging and self-storage sectors. Retail continued to have the highest delinquency rate (6.01%) by property type for the third consecutive month after eclipsing the lodging sector in April 2022. Similar to the prior month, there were new high-profile retail delinquencies this month, including an $85.2 million loan secured by the Crossroads Center regional mall in Saint Cloud, MN. The loan became 30 days delinquent in June 2022 but has been in special servicing since October 2020.

Special servicing rates declined across all major property types this month. The lodging sector, which had a special servicing rate of 7.72%, exhibited the greatest month-over-month improvement among all property types. One of the more notable drivers behind the decline in the special servicing rate for lodging loans was the $325 million Hyatt Regency New Orleans. The loan transferred to special servicing in July 2020 due to pandemic-related disruptions to operations but returned to the master servicer on May 17, 2022 after a March 2022 loan modification.

The retail sector had the highest special servicing rate (9.43%), weighted by relatively large mortgages secured by regional malls. In one of this month’s latest developments, the $210 million Eastview Mall and Commons loan transferred to special servicing on June 1, 2022. The borrower cited ongoing issues related to the pandemic; however, the loan also has an impending September 2022 maturity date in an unfavorable refinancing environment.

*DQ + SS = All distressed CMBS loans in the conduit and SASB universe that are delinquent, specially serviced, or a combination of both*

CRED iQ’s CMBS distressed rate (DQ + SS%) by property type accounts for loans that qualify for either delinquent or special servicing subsets. This month, overall distressed rates for all property types declined, except for office and industrial. Two of the largest loans added to the distressed category this month were 260 and 261 Madison Avenue, which failed to pay off at maturity, and Eastview Mall and Commons, which transferred to special servicing. For additional information about these two loans, click View Details below:

	[View Details]	[View Details]
Loan	260 and 261 Madison Avenue	Eastview Mall and Commons
Balance	$231,000,000	$210,000,000
Special Servicer Transfer Date	–	6/1/2022

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Recent Commercial Mortgage Originations

CRED iQ

June 28, 2022

This week, CRED iQ reviewed the commercial real estate lending landscape and highlighted five properties that secured financing in May and June 2022. In certain cases, financing packages from previous mortgage commitments were catalogued in CRED iQ’s database, which enables users to evaluate prior loan terms and pre-origination financial history. The highlighted loan originations feature five different property types — mixed-use, office, retail, industrial and self-storage. The largest featured commercial mortgage is secured by a mixed-use property located in the San Francisco MSA.

Using the CRED iQ platform’s Comps functionality, which features propriety Comps scoring for the CRE loan universe, we compared lending terms and loan structures to get a sense of the trends in the CRE lending environment. CRED iQ recently examined rising interest rates for CMBS conduit loans in a report published last week, comparing new originations in 2022 across several property types.

CRED iQ additionally provided valuations for each asset to evaluate leverage levels in relation to originators’ LTVs. The CRED iQ valuations factor in base-case (most likely), downside (significant loss of tenants), and dark scenarios (100% vacant). Base-case valuations for select properties are provided below. For access to the valuation reports as well as full CMBS loan reporting, including detailed financials, updated tenant information, and borrower contact information, sign up for a free trial here.

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The Lion Building

172,328 sf, Mixed Use (Industrial/Office), San Francisco, CA

A $100 million loan was originated by Deutsche Bank on June 8, 2022 to pay off $48 million of existing debt on The Lion Building, a 172,328-sf mixed-use property in San Francisco, CA. Financing from the mortgage was also used to fund $50.7 million in reserves. With more than 50% of the loan balance earmarked for reserves, the loan has a distinctive composition of sources and uses relative to other comparable recent originations. There is a $31 million earnout reserve tied to the smaller of the property’s two tenants, Embark Trucks (31% of NRA). Embark Trucks had not yet taken occupancy at origination and earnout will be completed when the tenant takes occupancy and starts paying rent, which is expected by August 2022. Other major reserve items were for tenant improvements and leasing commissions, free rent, and security deposits for the building’s two tenants.

The interest-only loan had a 10-year term and was structured with an interest rate of 5.1975%. The interest rate was below the weighted average interest rate of 5.87% for CMBS conduit loans secured by mixed-use properties that were originated in May 2022. The loan will be locked out from prepayment for two years, and defeasance will be permitted after lockout through the remainder of the loan term until its open period, five months prior to maturity.

Using CRED iQ’s Comps functionality, one of the most comparable originations is a loan secured by a 49,946-sf flex building located at 555 De Haro Street. The loan had a balance of $19 million was originated in October 2017. The comparable loan’s interest rate was 4.31%, which is approximately 89 bps lower than the new origination for The Lion Building.

The Lion Building is a four-story mixed-use building located in the Potrero Hill submarket of San Francisco, CA. The property is primarily zoned for industrial use centered around production, design, and repair operations but the building has an allowance for pure office use up to approximately 25% of the NRA. The property is fully leased to two tenants, neither of which had taken full occupancy at loan origination. IDEO is a design and consulting firm that leases 69% of the property, although a portion of the leased space does not commence until 2023. Embark Trucks, a software company for autonomous driving, leases the remaining 31% of the property but is not expected to take physical occupancy until August 2022 at the earliest.

The property was appraised at a value of $170 million ($986/sf) as of March 30, 2022. The appraisal resulted in an LTV of 59% and an implied cap rate of 5.40% based on the originator’s underwritten net cash flow. The debt yield came in at 12.9%, also based on NCF from the originator’s underwriting. For the full valuation report and loan-level details, click here.

Name	The Lion Building
Address	^{2525 16th Street San Francisco, CA 94103}
Property Type	Mixed Use
Property Subtype	Industrial/Office
Property Size	172,328 sf
Year Built	1924
Submarket	Potrero Hill
County	San Francisco
MSA	San Francisco-Oakland-Fremont, CA
Origination Date	6/8/2022
Loan Amount	$100,000,000
Interest Rate	5.20%
Debt Yield (UW NCF)	12.9%
Valuation
Appraised Value	$170,000,000 ($986/sf)
Appraisal Date	3/30/2022
Appraisal LTV	59%
CRED iQ Base-Case Value	$159,300,000 ($924/sf)

PentaCentre Office

734,156 sf, Office, Troy, MI

Citi funded a $34.3 million mortgage on June 2, 2022 for the acquisition of the PentaCentre Office complex in Troy, MI. The 10-year loan was structured with amortizing debt service payments based on a 30-year schedule. The interest rate for the mortgage was 5.32%, which compares to the May 2022 weighted average rate of 5.46% for CMBS conduit loans secured by office properties. Prepayment provisions for the loan include a two-year lockout period until defeasance is permitted. The prior financing package for PentaCentre Office, also funded by Citi, was a five-year $41.25 million mortgage that was originated in September 2017. The loan had an interest rate of 4.56%.

One of CRED iQ’s highest scoring loan comps is Troy Place, a $40 million loan that was originated in January 2019. The loan is secured by a 756,845-sf office complex located about two miles away from PentaCentre Office. The comparable loan had an interest rate of 5.09%, which was 23% lower than the new origination.

PentaCentre Office comprises four freestanding office buildings. The portfolio of properties was 62% occupied as of April 2022, which compares to 79% occupancy in 2021 and 77% occupancy in 2020. The property was appraised for $59.5 million ($81/sf) as of March 29, 2022, which resulted in an LTV of 58%. The originator’s underwritten NCF implied a cap rate of 6.68% and a debt yield of 11.6%. For the full valuation report and loan-level details, click here.

Name	PentaCentre Office
Address	^{300 – 340 East Big Beaver Road Troy, MI 48083}
Property Type	Office
Property Subtype	Suburban
Property Size	734,156 sf
Year Built	1986
Submarket	Troy South
County	Oakland
MSA	Detroit-Warren-Livonia, MI
Origination Date	6/2/2022
Loan Amount	$34,300,000
Interest Rate	5.32%
Debt Yield (UW NCF)	11.6%
Valuation
Appraised Value	$59,500,000 ($81/sf)
Appraisal Date	3/29/2022
Appraisal LTV	58%
CRED iQ Base-Case Value	$55,510,000 ($76/sf)

Sawmill Plaza

194,694 sf, Retail, Columbus, OH

A $19.5 million loan was originated by LMF Commercial on May 10, 2022 to fund the acquisition of Sawmill Plaza, a 194,694-sf shopping center in Columbus, OH. The property was sold to a private investor group based out of New Jersey from its former California-based owners for $27.4 million, equal to $141/sf. The 10-year loan amortizes over a 30-year period and has an interest rate of 5.63%. The loan’s interest rate is in line with the weighted average interest rate for retail conduit loans originated in May 2022. The loan will be locked out from prepayment for about two years, and defeasance will be permitted after lockout through the remainder of the loan term until its open period, four months prior to maturity. The property was previously encumbered by $16.5 million in floating rate debt with a rate of 1-month LIBOR plus 3.85%.

Sawmill Plaza is located approximately 13 miles north of the Columbus, OH CBD and is anchored by Hobby Lobby. The anchor tenant accounts for 30% of the property’s NRA pursuant to a lease that expires in February 2024. Planet Fitness is the second-largest tenant, accounting for 15% of NRA, with a lease that expires in September 2028. The property was 96% occupied as of March 2022. The collateral was appraised for $28 million ($144/sf) on March 18, 2022, resulting in an LTV of 70%. The implied cap rate based on the originator’s underwritten NCF was 7.00% and the debt yield was equal to 10.1% based on the same metrics. For the full valuation report and loan-level details, click here.

Name	Sawmill Plaza
Address	^{2643 Sawmill Place Boulevard Columbus, OH 43235}
Property Type	Retail
Property Subtype	Anchored
Property Size	194,691 sf
Year Built	1987
Submarket	Worthington
County	Delaware
MSA	Columbus, OH
Origination Date	5/10/2022
Loan Amount	$19,500,000
Interest Rate	5.63%
Debt Yield (UW NCF)	10.1%
Valuation
Appraised Value	$28,000,000 ($144/sf)
Appraisal Date	3/18/2022
Appraisal LTV	70%
CRED iQ Base-Case Value	$25,240,000 ($130/sf)

Valcour Industrial

490,000 sf, Industrial, St. Louis, MO

Bank of Montreal originated a $9.2 million loan on May 19, 2022 to refinance existing debt on a 490,000-sf industrial property in St. Louis, MO. After a five-year interest-only period, the 10-year loan will amortize based on a 30-year schedule. The interest rate for the loan is 5.55%, which was in line with the weighted average interest rate for conduit industrial loans originated in May 2022. The property’s previous mortgage had a similar structure but had an interest rate of 4.70%, which was 85 bps lower than the new origination.

The Valcour Industrial property is 100% occupied between two tenants. The larger tenant, Schroeder & Tremayne, has a lease expiration in December 2025. The smaller tenant, Miss Elaine, has a lease expiration in December 2024. The property was appraised for $13.1 million ($27/sf) as of January 25, 2022, which resulted in an LTV of 70% and an implied cap rate of 7.58% based on the originator’s underwritten net cash flow. The debt yield based on underwritten net cash flow came in at 10.8% For the full valuation report and loan-level details, click here.

Name	Valcour Industrial
Address	^{8500 Valcour Industrial St. Louis, MO 63123}
Property Type	Industrial
Property Subtype	Warehouse
Property Size	490,000 sf
Year Built	1961
Submarket	South County
County	St. Louis
MSA	St. Louis, MO-IL
Origination Date	5/19/2022
Loan Amount	$19,500,000
Interest Rate	5.55%
Debt Yield (UW NCF)	10.8%
Valuation
Appraised Value	$13,100,000 ($27/sf)
Appraisal Date	1/25/2022
Appraisal LTV	70%
CRED iQ Base-Case Value	$13,080,000 ($27/sf)

Mini U Storage – Woodbridge

58,075 sf, Self-Storage, Woodbridge, VA

KeyBank originated a $5.6 million loan on June 7, 2022 to refinance existing debt on a self-storage property in Woodbridge, VA, located approximately 30 miles south of Washington, DC. The 10-year interest-only loan has an interest rate of 5.66%, which is significantly higher than the average for self-storage conduit loans originated year-to-date in 2022. The weighted average interest rate for self-storage loans in CMBS conduit securitizations was approximately 4.9% in April and May 2022. One of CRED iQ’s highest scoring comps was Dumfries Self Storage, which secured a $2.5 million loan. The loan was originated in October 2015 and had an interest rate of 4.43%.

Mini U Storage contains units ranging from 5’ x 5’ to 20’ x 25’. The property was appraised at a value of $10.65 million ($183/sf) as of May 4, 2022. The appraisal resulted in an LTV of 53%, and an implied cap rate of 4.88% based on the originator’s underwritten NCF. The debt yield came in at 9.2%, also based on NCF from the originator’s underwriting. For the full valuation report and loan-level details, click here.

Name	Mini U Storage – Woodbridge
Address	^{13901 Smoketown Road Woodbridge, VA 22192}
Property Type	Self Storage
Property Subtype	Self Storage
Property Size	58,075 sf
Year Built	1999
Submarket	Manassas/Woodbridge
County	Prince William
MSA	Washington-Arlington-Alexandria, DC-VA-MD-WV
Origination Date	6/7/2022
Loan Amount	$5,625,000
Interest Rate	5.66%
Debt Yield (UW NCF)	9.2%
Valuation
Appraised Value	$10,650,000 ($183/sf)
Appraisal Date	5/4/2022
Appraisal LTV	53%
CRED iQ Base-Case Value	$55,510,000 ($76/sf)

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CMBS – Rising Interest Rates for CMBS Conduit Loans

CRED iQ

June 22, 2022

CRED iQ monitored interest rates for CMBS conduit loans that were originated in 2022, evaluating the trends and impacts of a rising rate environment for commercial real estate mortgages. Loans with origination dates in 2022 were isolated, examining 15 CMBS conduit securitizations issued through mid-June. Interest rates for commercial mortgages have risen as the Federal Reserve has set its policy rate higher to reduce inflation. Higher interest rates can have many reverberations throughout the commercial real estate market, including heightened maturity default risk for active loans, for example. In these cases, refinancing at a higher rate may not be feasible due to debt service coverage limitations. Interest rate changes were examined across the entire subset of 2022 CMBS conduit loan originations as a whole and on an individual basis by collateral property type.

The weighted average (WA) interest rate for conduit loans increased 129 basis points from January 2022 through May 2022. Based on available data, the WA interest rate for CMBS conduit loans was 5.15% in May 2022, which compares to 3.86% in January 2022. The rise in the WA interest rate represents an increase of approximately 33% over this time frame.

From the subset of data, loans secured by mixed-use properties had the highest WA interest rate (5.87%) while loans secured by multifamily properties had the lowest (4.30%). This was not the case in January 2022, suggesting interest rates, on average, may have increased at different velocities during the first half of 2022. For loans with January 2022 origination dates, multifamily still had the lowest WA interest rate (3.61%), but hospitality had the highest WA interest rate (4.57%). An important note to the subset of data, there were zero May 2022 originations of loans secured by lodging properties — the May 2022 WA interest rate for hospitality loans was not a data point.

Interest rates for loans secured by office properties exhibited the sharpest increase so far in 2022. The WA interest rate for office loans increased approximately 49%, from 3.67% in January 2022 to 5.46% in May 2022. Office collateral, and especially Class-B and Class-C office, has been a growing concern for originators and investors alike due to weakening fundamentals and uncertainty relating to the overall economy as well as changing dynamics in the workforce. Although rates are rising across all property types, the additional headwinds facing the office sector have likely contributed to sharper increases in interest rates for mortgages secured by office properties.

Excluding hospitality due to a lack of May 2022 originations, CMBS conduit loans secured by multifamily and self-storage properties exhibited the most modest increases in interest rates from January through May. However, May 2022 multifamily originations were heavily weighted downward by the $539.5 million Yorkshire & Lexington Towers loan, which carried a relatively low 3.04% interest rate. Interest rates for self-storage loans increased 83 basis points from January through May, equal to a 20% increase and among the lowest increases among all property types.

With additional interest rate increases in the coming months a forgone conclusion, the effects of rate hikes will continue to impact commercial real estate originations. However, the volatility and velocity of such interest rate increases may have a dampening effect on new originations slated to be securitized in CMBS conduits deals, at least temporarily until a more stable rate environment materializes.

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Revlon Bankruptcy and One New York Plaza

CRED iQ

June 21, 2022

In this week’s WAR Report, CRED iQ calculated an updated valuation for One New York Plaza, which secures an $835 million commercial mortgage. The Brookfield-owned 2.6 million-sf office tower came into focus after the June 15, 2022 bankruptcy filing of Revlon, the property’s fifth-largest tenant. Details from Revlon’s Chapter 11 filing were reported by @LaurenThomas in a June 16 article citing primary operational issues with the company such as an oversized debt burden and headwinds with supply chain management. As part of the restructuring, Revlon expects to secure $575 million in debtor-in-possession financing to support day-to-day operations.

Revlon’s corporate headquarters is located at One New York Plaza. Revlon occupies 107,121 sf of space pursuant to a lease that expires in June 2030. However, Revlon does not operate any stand-alone retail stores, but rather sells most of its products to large-scaler retailers such as Walmart, Target, Kohl’s, Macy’s, TJ Maxx, Marshalls, and drug stores such as CVS and Walgreens, to name a few.

All of the firm’s liabilities will likely be reviewed during a restructuring process, including Revlon’s lease at One New York Plaza. Of note, the firm already requested for a 45-day extension to file a schedule of unexpired leases. Although a full departure from One New York Plaza by Revlon is possible, more likely scenarios include a reduced footprint via subleasing or negotiated rent concessions. The issuer underwrote Revlon’s rent at $55.98/sf, equal to approximately $6 million per year. Revlon’s rental rent was among the highest of all tenants at One New York Plaza, which was unsurprising considering 84% of the tenant’s footprint is composed of the top two floors of the building. Valuation scenarios of One New York Plaza should factor in a potential loss of revenue from an adverse outcome in Revlon’s restructuring.

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CRED iQ valuations factor in base-case (most likely), downside (significant loss of tenants), and dark scenarios (100% vacant). A base-case valuation for One New York Plaza is presented below. For full access to the valuation reports as well as full CMBS loan reporting, including detailed financials, updated tenant information, and borrower contact information, sign up for a free trial here.

	[View Details]
Property Name	One New York Plaza
Address	^{1 New York Plaza New York, NY 10004}
MSA	^{New York-Northern New Jersey-Long Island, NY-NJ-PA}
Market	Downtown Manhattan
Submarket	Financial East
Property Type	Office
Size	2,582,316 sf
Loan Balance	$835,000,000
Interest Rate	1-Month LIBOR + 1.52258%
Initial Maturity Date	1/9/2023
Fully Extended Maturity Date	1/9/2026
Most Recent Appraisal	$1,540,000,000 ($596/sf)
Most Recent Appraisal Date	11/16/2020

CRED iQ Base-Case Value	$1,154,000,000 ($447/sf)
CRED iQ Base-Case Value LTV	72.4%

Potential outcomes from Revlon’s bankruptcy proceedings include the firm’s decision to assume or reject its lease at One New York Plaza. Initial reports surrounding the bankruptcy filing suggest the focus of the company is to restructure and emerge with a stronger balance sheet vs. any type of liquidation scenario; therefore, Revlon maintaining a presence at One New York Plaza post-bankruptcy emergence remains plausible. However, the company may face pressure to reduce its leasing costs or its overall footprint at the property. Revlon leases the entire 49^th and 50^th floors as well as a portion of the 36^th floor. Subleasing a portion of its space is also an option for the non-contiguous space. Manhattan sublease activity has been elevated in recent months.

The 50-story tower was 100% occupied as of year-end 2021, which was an improvement compared to 96.5% occupancy from a year prior. However, multiple reports of subleasing activity indicate that availability at the property could be approximately 8% of NRA. Specifically, WellCare Health Plans appears to be marketing its space for sublease ahead of its October 2025 lease expiration, accounting for 2.6% of NRA. Additionally, Macmillan Publishers is the third-largest tenant at the property, accounting for 7% of NRA, but the tenant will vacate at lease expiration in June 2031. Macmillan Publishers has been subleasing space since its decision to move to 120 Broadway and consolidate operations. Fortunately, both tenants have substantial term left on their leases, allowing time to sign subtenants and ability to convert those to direct tenants. Finally, Morgan Stanley as the largest tenant has contraction options on portions of its space totaling approximately 90,000 sf (3.5% of NRA). The contraction option would be effective in April 2023 but notice of contraction was required by January 2022. In summary, there remains uncertainty surrounding approximately 17% of the property’s NRA despite reported occupancy of 100%.

Although One New York Plaza is one of the top-tier office buildings in Downtown Manhattan, especially within the Financial East submarket — office market fundamentals present a concerning dynamic for property valuation. According to CBRE, the availability rate of Downtown Manhattan was 22.4% as of June 2022. Further, average asking rent of $58.62/sf was flat in June 2022 compared to the prior year. Additional concerns include a loss of parking revenue at the property brought on by the pandemic, which totaled approximately $1.4 million in revenue.

Overall, the potential loss of revenue from Revlon on a stand-alone basis is unlikely to put the mortgage or the property in distress. CRED iQ’s base-case valuation, with consideration of the above factors, implies relatively adequate leverage levels. Further, it will take eight to nine years for some of the questionable tenants’ leases — namely Revlon and Macmillan Publishing — to roll off the tenant roster. However, the Revlon event combined with weakening office fundamentals serves as one of the first credit flaws for an otherwise pristine office property.

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CMBS – May 2022 Loan Dispositions and Payoffs

CRED iQ

June 10, 2022

CMBS conduit and SBLL transactions incurred approximately $263 million in realized losses during May 2022 through the workout of distressed assets. CRED iQ identified 34 workouts classified as dispositions, liquidation, or discounted payoffs in May 2022. Additionally, there were two distressed loans securitized in Freddie K transactions that were in need of a workout, but only one of those loans incurred a nominal loss. Of those 36 total workouts, there were 14 distressed assets that were resolved without a loss. Loss severities for the month of April ranged from 2% to 100%, based on outstanding balances at disposition. Total realized losses in May represented more than a threefold increase compared to April’s realized loss totals of approximately $75 million.

Retail properties represented the highest number of distressed workouts this month with 14. There were 10 distressed workouts involving lodging properties. Together, these two property types account for 67% of the total number of distresses CMBS workouts.

One AT&T Center represents the largest loss, by total amount and severity, among all distressed workouts this month. The property was foreclosed on in 2017 after its sole tenant, AT&T, vacated at lease expiration. The 1.2 million-sf office tower sold for $4.1 million, equal to $3/sf, in May 2022 after spending approximately five years in special servicing. The REO asset was liquidated with a 100% loss severity on $107.1 million in outstanding debt prior to disposition.

Another notable distressed workout was the disposition of the $94.5 million Emerald Square Mall loan, which is secured by a 564,501-sf portion of a super-regional mall in North Attleboro, MA. The mall was formerly controlled by Simon Property Group but went into receivership shortly after the loan transferred to special servicing in September 2020. After a nearly two-year workout, the loan was resolved with a 77% loss severity, resulting in $72.5 million in principal losses to CMBS certificate holders. Emerald Square Mall represented the second-highest individual realized loss by total amount and the fourth highest by loss severity.

Excluding defeased loans, there was approximately $5.2 billion in securitized debt that was paid off or worked out in May, which was lower than $6.1 billion in April 2022. In May, 11% of the loan resolutions were categorized as dispositions, liquidations, or discounted payoffs, which was slightly higher than the prior month. An additional 15% of the loans paid off with prepayment penalties.

By property type, office had the highest total of outstanding debt paid off in May. The high volume of office payoffs was driven by the retirement of a $1.3 billion mortgage secured by Blackstone’s 27-property BioMed Realty portfolio. Lodging and multifamily loans also had a high volume of payoffs and dispositions.

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Market Delinquency Tracker – June 2022

CRED iQ

June 9, 2022

CRED iQ monitors distressed rates and market performance for nearly 400 MSAs across the United States, covering over $900 billion in outstanding commercial real estate (CRE) debt. Distressed rates (DQ + SS%) include loans that are specially serviced, delinquent, or a combination of both. Distressed rates and month-over-month changes are presented below for the 50 largest MSAs, broken out by property type for a granular view of distress by market-sector.

On high level, only seven of the Top 50 MSAs tracked by CRED iQ exhibited an overall month-over-month increase in distress in May 2022, without regard to property type sector. There were 43 markets, or 86% of the Top 50, with overall improvements in the percentage of distressed CRE loans within the CMBS universe compared to the prior month. Among the MSAs with the sharpest declines this month were Louisville and Chicago.

Looking at a more granular level by property type, the lodging sector continues to lead the way as the most common property sector to show improvements, in concert with prior months. Loans secured by lodging properties accounted for six of the 10 largest declines in distress by market-sector, including Chicago, Milwaukee, and Bridgeport, CT.

The most common property types among increases in distress by market-sector were hotel and retail. The Baltimore mixed-use market experienced one of the highest month-over-month increase in distress. A $67.9 million mortgage secured by the Gallery at Harborplace failed to pay off at maturity on May 1, 2022, which contributed to the near entirety of the increase in distress for the market. Gallery at Harborplace is a 406,594-sf mixed-use property comprising retail and office space. The Detroit hotel market was also among the Top 10 market-sectors to show a higher month-over-month rate of distress. A major contributor to Detroit’s lodging distress is a $77 million loan secured by the 453-key Westin Book Cadillac hotel. The loan was modified in December 2021 after transferring to special servicing in August 2020. The loan returned to the master servicer in March 2022 and was current as of April but became 30 days delinquent as of May 2022.

The Minneapolis MSA has the highest overall distressed rate at 22.1%, which was a slight decline compared to the prior month. New Orleans (13.0%), Hartford, CT (10.8%), Milwaukee (10.7%), and Louisville (10.3%) comprise the remaining markets with the highest rates of distress. Hartford made its debut this month among the Top 5 markets with CRE distress, supplanting the Cleveland MSA. The Sacramento market (0.1%) had the lowest percentage of distress among the Top 50 MSAs for the second consecutive month.

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MSA – Property Type	DQ/SS (millions)	DS/SS (%)	Monthly Change
Allentown-Bethlehem-Easton, PA-NJ MSA	$78.2	2.5%	0.0%
Allentown – Hotel	$0.0	0.0%	0.0%
Allentown – Industrial	$0.0	0.0%	0.0%
Allentown – Multifamily	$0.0	0.0%	0.0%
Allentown – Office	$59.0	15.7%	-5.5%
Allentown – Other	$0.0	0.0%	0.0%
Allentown – Retail	$19.2	5.0%	-0.3%
Allentown – Self Storage	$0.0	0.0%	0.0%
Atlanta – Atlanta-Sandy Springs-Marietta, GA MSA	$631.5	2.3%	-0.3%
Atlanta – Hotel	$158.6	8.1%	-0.4%
Atlanta – Industrial	$17.9	1.2%	-2.1%
Atlanta – Multifamily	$0.0	0.0%	0.0%
Atlanta – Office	$48.3	1.9%	-0.3%
Atlanta – Other	$0.2	0.0%	0.0%
Atlanta – Retail	$406.5	16.8%	0.9%
Atlanta – Self Storage	$0.0	0.0%	0.0%
Austin – Austin-Round Rock, TX MSA	$112.2	1.2%	-1.0%
Austin – Hotel	$57.0	7.5%	0.4%
Austin – Industrial	$0.0	0.0%	0.0%
Austin – Multifamily	$36.0	0.6%	-0.9%
Austin – Office	$0.0	0.0%	0.0%
Austin – Other	$04.2	0.9%	-0.3%
Austin – Retail	$15.0	1.7%	-4.0%
Austin – Self Storage	$0.0	0.0%	0.0%
Baltimore – Baltimore-Towson, MD MSA	$403.2	4.5%	-0.5%
Baltimore – Hotel	$71.7	18.1%	2.0%
Baltimore – Industrial	$0.0	0.0%	0.0%
Baltimore – Multifamily	$03.9	0.1%	-1.1%
Baltimore – Office	$58.0	8.2%	-0.9%
Baltimore – Other	$79.6	24.6%	21.4%
Baltimore – Retail	$190.0	18.2%	-4.3%
Baltimore – Self Storage	$0.0	0.0%	0.0%
Birmingham – Birmingham-Hoover, AL MSA	$117.2	4.1%	-0.7%
Birmingham – Hotel	$0.0	0.0%	-11.1%
Birmingham – Industrial	$0.0	0.0%	0.0%
Birmingham – Multifamily	$0.0	0.0%	0.0%
Birmingham – Office	$96.0	18.7%	-0.3%
Birmingham – Other	$0.0	0.0%	0.0%
Birmingham – Retail	$20.3	2.9%	-0.2%
Birmingham – Self Storage	$0.9	3.4%	0.6%
Boston – Boston-Cambridge-Quincy, MA-NH MSA	$118.0	0.7%	0.0%
Boston – Hotel	$26.8	1.7%	-2.7%
Boston – Industrial	$0.0	0.0%	0.0%
Boston – Multifamily	$0.0	0.0%	0.0%
Boston – Office	$0.0	0.0%	0.0%
Boston – Other	$0.0	0.0%	0.0%
Boston – Retail	$91.2	8.0%	1.7%
Boston – Self Storage	$0.0	0.0%	0.0%
Bridgeport – Bridgeport-Stamford-Norwalk, CT MSA	$151.2	4.1%	-1.1%
Bridgeport – Hotel	$38.1	42.0%	-10.9%
Bridgeport – Industrial	$0.0	0.0%	-15.0%
Bridgeport – Multifamily	$0.0	0.0%	-0.1%
Bridgeport – Office	$103.3	9.2%	0.4%
Bridgeport – Other	$09.8	2.5%	0.1%
Bridgeport – Retail	$0.0	0.0%	-2.0%
Bridgeport – Self Storage	$0.0	0.0%	0.0%
Charlotte – Charlotte-Gastonia-Concord, NC-SC MSA	$172.1	2.2%	-1.5%
Charlotte – Hotel	$86.2	7.5%	-0.2%
Charlotte – Industrial	$0.0	0.0%	0.0%
Charlotte – Multifamily	$0.0	0.0%	0.0%
Charlotte – Office	$0.0	0.0%	-2.3%
Charlotte – Other	$85.0	30.3%	5.3%
Charlotte – Retail	$0.9	0.1%	-8.4%
Charlotte – Self Storage	$0.0	0.0%	0.0%
Chicago – Chicago-Naperville-Joliet, IL-IN-WI MSA	$1,880.1	6.1%	-2.8%
Chicago – Hotel	$819.2	26.8%	-13.8%
Chicago – Industrial	$0.0	0.0%	-0.1%
Chicago – Multifamily	$11.4	0.1%	-1.8%
Chicago – Office	$640.2	7.5%	-3.9%
Chicago – Other	$110.8	4.5%	-8.2%
Chicago – Retail	$298.4	9.8%	-1.6%
Chicago – Self Storage	$0.0	0.0%	0.0%
Cincinnati – Cincinnati-Middletown, OH-KY-IN MSA	$206.3	5.3%	-0.9%
Cincinnati – Hotel	$87.7	31.3%	-3.8%
Cincinnati – Industrial	$0.0	0.0%	0.0%
Cincinnati – Multifamily	$0.0	0.0%	0.0%
Cincinnati – Office	$0.0	0.0%	0.0%
Cincinnati – Other	$06.9	2.5%	0.0%
Cincinnati – Retail	$111.8	17.3%	-2.6%
Cincinnati – Self Storage	$0.0	0.0%	0.0%
Cleveland – Cleveland-Elyria-Mentor, OH MSA	$342.1	8.6%	-1.0%
Cleveland – Hotel	$56.1	31.6%	-9.4%
Cleveland – Industrial	$0.0	0.0%	0.0%
Cleveland – Multifamily	$0.0	0.0%	0.0%
Cleveland – Office	$103.7	11.6%	-1.7%
Cleveland – Other	$175.2	46.1%	3.0%
Cleveland – Retail	$06.2	0.9%	-2.1%
Cleveland – Self Storage	$0.8	1.9%	0.1%
Columbus, OH – Columbus, OH MSA	$218.6	3.1%	-0.6%
Columbus, OH – Hotel	$72.0	24.3%	-5.5%
Columbus, OH – Industrial	$11.8	3.3%	-0.3%
Columbus, OH – Multifamily	$12.8	0.3%	-0.2%
Columbus, OH – Office	$12.3	1.9%	-0.2%
Columbus, OH – Other	$0.0	0.0%	0.0%
Columbus, OH – Retail	$109.8	15.6%	0.1%
Columbus, OH – Self Storage	$0.0	0.0%	0.0%
Dallas – Dallas-Fort Worth-Arlington, TX MSA	$292.3	0.9%	-0.4%
Dallas – Hotel	$86.9	2.6%	-1.0%
Dallas – Industrial	$01.7	0.1%	0.0%
Dallas – Multifamily	$0.9	0.0%	-0.1%
Dallas – Office	$105.2	3.1%	0.2%
Dallas – Other	$23.4	1.1%	0.0%
Dallas – Retail	$74.2	3.4%	-2.3%
Dallas – Self Storage	$0.0	0.0%	0.0%
Denver – Denver-Aurora, CO MSA	$227.6	1.4%	-0.6%
Denver – Hotel	$23.0	3.1%	0.0%
Denver – Industrial	$0.0	0.0%	0.0%
Denver – Multifamily	$0.0	0.0%	0.0%
Denver – Office	$120.2	5.8%	-3.8%
Denver – Other	$66.5	6.9%	-0.2%
Denver – Retail	$17.9	1.3%	-2.1%
Denver – Self Storage	$0.0	0.0%	0.0%
Detroit – Detroit-Warren-Livonia, MI MSA	$232.5	2.5%	-0.7%
Detroit – Hotel	$158.3	24.3%	12.4%
Detroit – Industrial	$0.0	0.0%	-3.5%
Detroit – Multifamily	$0.0	0.0%	-0.8%
Detroit – Office	$0.0	0.0%	0.0%
Detroit – Other	$22.0	2.7%	-1.0%
Detroit – Retail	$52.2	3.6%	-5.4%
Detroit – Self Storage	$0.0	0.0%	0.0%
Hartford – Hartford-West Hartford-East Hartford, CT MSA	$256.9	10.8%	2.6%
Hartford – Hotel	$62.2	49.8%	-1.9%
Hartford – Industrial	$0.0	0.0%	0.0%
Hartford – Multifamily	$0.0	0.0%	0.0%
Hartford – Office	$35.9	11.8%	-16.8%
Hartford – Other	$0.0	0.0%	0.0%
Hartford – Retail	$158.9	47.1%	34.3%
Hartford – Self Storage	$0.0	0.0%	0.0%
Houston – Houston-Sugar Land-Baytown, TX MSA	$1,011.3	4.2%	-0.7%
Houston – Hotel	$478.2	43.3%	-6.3%
Houston – Industrial	$04.2	0.8%	-5.3%
Houston – Multifamily	$12.1	0.1%	-0.1%
Houston – Office	$420.0	12.3%	1.5%
Houston – Other	$0.0	0.0%	0.0%
Houston – Retail	$96.7	2.5%	-0.1%
Houston – Self Storage	$0.0	0.0%	0.0%
Indianapolis – Indianapolis-Carmel, IN MSA	$180.7	3.3%	-1.1%
Indianapolis – Hotel	$50.0	8.1%	-5.3%
Indianapolis – Industrial	$0.0	0.0%	0.0%
Indianapolis – Multifamily	$48.8	1.7%	0.5%
Indianapolis – Office	$71.4	12.0%	-0.3%
Indianapolis – Other	$04.9	1.7%	-1.1%
Indianapolis – Retail	$05.7	1.5%	-7.1%
Indianapolis – Self Storage	$0.0	0.0%	-3.8%
Jacksonville – Jacksonville, FL MSA	$22.8	0.4%	-0.1%
Jacksonville – Hotel	$13.9	3.7%	0.1%
Jacksonville – Industrial	$0.0	0.0%	0.0%
Jacksonville – Multifamily	$0.0	0.0%	0.0%
Jacksonville – Office	$0.0	0.0%	-0.9%
Jacksonville – Other	$0.0	0.0%	0.0%
Jacksonville – Retail	$08.9	2.2%	1.1%
Jacksonville – Self Storage	$0.0	0.0%	0.0%
Kansas City – Kansas City, MO-KS MSA	$105.5	2.0%	-0.8%
Kansas City – Hotel	$80.3	24.9%	-3.0%
Kansas City – Industrial	$0.0	0.0%	0.0%
Kansas City – Multifamily	$03.9	0.1%	-0.1%
Kansas City – Office	$0.0	0.0%	0.0%
Kansas City – Other	$0.0	0.0%	0.0%
Kansas City – Retail	$21.4	3.2%	-4.4%
Kansas City – Self Storage	$0.0	0.0%	0.0%
Las Vegas – Las Vegas-Paradise, NV MSA	$242.6	1.1%	-0.5%
Las Vegas – Hotel	$0.0	0.0%	0.0%
Las Vegas – Industrial	$0.0	0.0%	0.0%
Las Vegas – Multifamily	$0.0	0.0%	0.0%
Las Vegas – Office	$0.0	0.0%	-3.2%
Las Vegas – Other	$0.0	0.0%	0.0%
Las Vegas – Retail	$242.6	5.3%	-1.0%
Las Vegas – Self Storage	$0.0	0.0%	0.0%
Los Angeles – Los Angeles-Long Beach-Santa Ana, CA MSA	$774.6	1.5%	-0.3%
Los Angeles – Hotel	$357.1	5.3%	-3.2%
Los Angeles – Industrial	$0.0	0.0%	-0.2%
Los Angeles – Multifamily	$08.2	0.0%	-0.2%
Los Angeles – Office	$06.8	0.1%	0.0%
Los Angeles – Other	$85.7	2.6%	-0.8%
Los Angeles – Retail	$316.9	5.0%	-0.4%
Los Angeles – Self Storage	$0.0	0.0%	0.0%
Louisville – Louisville/Jefferson County, KY-IN MSA	$299.0	10.3%	-7.2%
Louisville – Hotel	$0.0	0.0%	-56.0%
Louisville – Industrial	$0.0	0.0%	0.0%
Louisville – Multifamily	$0.0	0.0%	-0.3%
Louisville – Office	$0.0	0.0%	0.0%
Louisville – Other	$0.0	0.0%	0.0%
Louisville – Retail	$299.0	52.9%	5.6%
Louisville – Self Storage	$0.0	0.0%	0.0%
Memphis – Memphis, TN-AR-MS MSA	$86.1	3.6%	0.2%
Memphis – Hotel	$24.3	12.9%	-1.1%
Memphis – Industrial	$0.0	0.0%	0.0%
Memphis – Multifamily	$0.0	0.0%	0.0%
Memphis – Office	$0.0	0.0%	0.0%
Memphis – Other	$0.2	0.5%	-28.9%
Memphis – Retail	$61.6	16.3%	4.7%
Memphis – Self Storage	$0.0	0.0%	0.0%
Miami – Miami-Fort Lauderdale-Pompano Beach, FL MSA	$298.7	1.2%	-1.6%
Miami – Hotel	$93.7	2.2%	0.1%
Miami – Industrial	$0.0	0.0%	0.0%
Miami – Multifamily	$0.0	0.0%	-2.0%
Miami – Office	$04.0	0.2%	-0.2%
Miami – Other	$08.6	0.6%	0.0%
Miami – Retail	$192.4	3.8%	-3.1%
Miami – Self Storage	$0.0	0.0%	0.0%
Milwaukee – Milwaukee-Waukesha-West Allis, WI MSA	$263.9	10.7%	-0.3%
Milwaukee – Hotel	$18.3	12.2%	-11.5%
Milwaukee – Industrial	$0.0	0.0%	0.0%
Milwaukee – Multifamily	$0.0	0.0%	0.0%
Milwaukee – Office	$94.5	17.6%	0.6%
Milwaukee – Other	$0.6	0.4%	0.4%
Milwaukee – Retail	$150.6	30.4%	1.3%
Milwaukee – Self Storage	$0.0	0.0%	0.0%
Minneapolis – Minneapolis-St. Paul-Bloomington, MN-WI MSA	$1,840.5	22.1%	-0.1%
Minneapolis – Hotel	$285.6	44.2%	-4.1%
Minneapolis – Industrial	$0.0	0.0%	0.0%
Minneapolis – Multifamily	$0.0	0.0%	0.0%
Minneapolis – Office	$142.5	7.3%	0.4%
Minneapolis – Other	$04.2	0.8%	-2.0%
Minneapolis – Retail	$1,408.2	75.1%	1.3%
Minneapolis – Self Storage	$0.0	0.0%	0.0%
Nashville – Nashville-Davidson-Murfreesboro-Franklin, TN MSA	$69.1	1.1%	-1.1%
Nashville – Hotel	$59.4	4.3%	-5.7%
Nashville – Industrial	$0.0	0.0%	0.0%
Nashville – Multifamily	$0.0	0.0%	0.0%
Nashville – Office	$0.0	0.0%	0.0%
Nashville – Other	$0.2	0.5%	0.5%
Nashville – Retail	$09.4	1.3%	0.8%
Nashville – Self Storage	$0.0	0.0%	0.0%
New Orleans – New Orleans-Metairie-Kenner, LA MSA	$455.1	13.0%	-0.3%
New Orleans – Hotel	$407.1	37.0%	0.0%
New Orleans – Industrial	$0.0	0.0%	0.0%
New Orleans – Multifamily	$08.4	1.0%	-0.5%
New Orleans – Office	$17.2	3.0%	-2.0%
New Orleans – Other	$0.0	0.0%	-7.7%
New Orleans – Retail	$22.4	3.3%	0.3%
New Orleans – Self Storage	$0.0	0.0%	0.0%
New York City – New York-Northern New Jersey-Long Island, NY-NJ-PA MSA	$5,707.7	4.3%	-0.5%
New York City – Hotel	$1,266.0	33.7%	-4.2%
New York City – Industrial	$07.4	0.2%	-3.0%
New York City – Multifamily	$314.1	0.8%	-0.4%
New York City – Office	$1,411.5	3.0%	-0.4%
New York City – Other	$1,557.4	6.3%	0.9%
New York City – Retail	$1,151.3	8.7%	-0.9%
New York City – Self Storage	$0.0	0.0%	0.0%
Orlando – Orlando-Kissimmee, FL MSA	$173.1	1.6%	-0.3%
Orlando – Hotel	$86.1	2.9%	-0.8%
Orlando – Industrial	$0.0	0.0%	0.0%
Orlando – Multifamily	$0.0	0.0%	0.0%
Orlando – Office	$47.0	10.8%	0.7%
Orlando – Other	$0.0	0.0%	0.0%
Orlando – Retail	$39.9	3.9%	-1.0%
Orlando – Self Storage	$0.0	0.0%	0.0%
Philadelphia – Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA	$278.5	1.4%	-1.5%
Philadelphia – Hotel	$87.6	10.5%	-0.1%
Philadelphia – Industrial	$0.0	0.0%	0.0%
Philadelphia – Multifamily	$34.1	0.4%	-0.7%
Philadelphia – Office	$116.5	2.9%	-0.5%
Philadelphia – Other	$20.5	1.4%	-2.2%
Philadelphia – Retail	$19.7	0.9%	-7.7%
Philadelphia – Self Storage	$0.0	0.0%	0.0%
Phoenix – Phoenix-Mesa-Scottsdale, AZ MSA	$229.9	1.2%	0.1%
Phoenix – Hotel	$32.5	2.0%	1.0%
Phoenix – Industrial	$10.1	0.8%	-1.3%
Phoenix – Multifamily	$0.0	0.0%	0.0%
Phoenix – Office	$41.2	1.8%	0.8%
Phoenix – Other	$0.0	0.0%	0.0%
Phoenix – Retail	$146.2	7.8%	1.5%
Phoenix – Self Storage	$0.0	0.0%	0.0%
Pittsburgh – Pittsburgh, PA MSA	$47.9	1.0%	-0.2%
Pittsburgh – Hotel	$15.9	9.9%	-2.1%
Pittsburgh – Industrial	$0.0	0.0%	0.0%
Pittsburgh – Multifamily	$0.0	0.0%	0.0%
Pittsburgh – Office	$24.0	2.2%	0.7%
Pittsburgh – Other	$08.0	1.9%	-0.3%
Pittsburgh – Retail	$0.0	0.0%	-1.1%
Pittsburgh – Self Storage	$0.0	0.0%	0.0%
Portland – Portland-Vancouver-Beaverton, OR-WA MSA	$447.0	6.4%	-0.8%
Portland – Hotel	$416.1	48.6%	-6.0%
Portland – Industrial	$0.0	0.0%	0.0%
Portland – Multifamily	$10.2	0.2%	-0.1%
Portland – Office	$20.7	4.9%	-0.9%
Portland – Other	$0.0	0.0%	0.0%
Portland – Retail	$0.0	0.0%	0.0%
Portland – Self Storage	$0.0	0.0%	0.0%
Raleigh – Raleigh-Cary, NC MSA	$24.7	0.6%	0.1%
Raleigh – Hotel	$24.7	9.3%	6.1%
Raleigh – Industrial	$0.0	0.0%	0.0%
Raleigh – Multifamily	$0.0	0.0%	-0.4%
Raleigh – Office	$0.0	0.0%	0.0%
Raleigh – Other	$0.0	0.0%	0.0%
Raleigh – Retail	$0.0	0.0%	0.0%
Raleigh – Self Storage	$0.0	0.0%	0.0%
Richmond – Richmond, VA MSA	$54.9	1.6%	-0.8%
Richmond – Hotel	$0.0	0.0%	0.0%
Richmond – Industrial	$0.0	0.0%	0.0%
Richmond – Multifamily	$0.0	0.0%	0.0%
Richmond – Office	$0.0	0.0%	0.0%
Richmond – Other	$0.0	0.0%	0.0%
Richmond – Retail	$54.9	11.2%	-3.7%
Richmond – Self Storage	$0.0	0.0%	0.0%
Riverside – Riverside-San Bernardino-Ontario, CA MSA	$292.8	2.9%	-0.2%
Riverside – Hotel	$62.7	14.8%	-8.3%
Riverside – Industrial	$0.0	0.0%	0.0%
Riverside – Multifamily	$0.0	0.0%	-0.2%
Riverside – Office	$0.0	0.0%	0.0%
Riverside – Other	$0.0	0.0%	0.0%
Riverside – Retail	$230.1	11.2%	1.5%
Riverside – Self Storage	$0.0	0.0%	0.0%
Sacramento – Sacramento-Arden-Arcade-Roseville, CA MSA	$05.7	0.1%	-0.3%
Sacramento – Hotel	$05.7	1.7%	0.1%
Sacramento – Industrial	$0.0	0.0%	0.0%
Sacramento – Multifamily	$0.0	0.0%	0.0%
Sacramento – Office	$0.0	0.0%	-0.8%
Sacramento – Other	$0.0	0.0%	0.0%
Sacramento – Retail	$0.0	0.0%	-1.7%
Sacramento – Self Storage	$0.0	0.0%	0.0%
Salt Lake City – Salt Lake City, UT MSA	$28.0	0.7%	-0.6%
Salt Lake City – Hotel	$28.0	10.1%	-6.5%
Salt Lake City – Industrial	$0.0	0.0%	0.0%
Salt Lake City – Multifamily	$0.0	0.0%	0.0%
Salt Lake City – Office	$0.0	0.0%	0.0%
Salt Lake City – Other	$0.0	0.0%	0.0%
Salt Lake City – Retail	$0.0	0.0%	0.0%
Salt Lake City – Self Storage	$0.0	0.0%	0.0%
San Antonio – San Antonio, TX MSA	$124.9	2.0%	-0.2%
San Antonio – Hotel	$07.2	2.9%	-0.2%
San Antonio – Industrial	$0.0	0.0%	-0.8%
San Antonio – Multifamily	$0.0	0.0%	-0.2%
San Antonio – Office	$0.0	0.0%	0.0%
San Antonio – Other	$0.0	0.0%	0.0%
San Antonio – Retail	$117.7	19.2%	5.3%
San Antonio – Self Storage	$0.0	0.0%	0.0%
San Diego – San Diego-Carlsbad-San Marcos, CA MSA	$91.7	0.7%	0.0%
San Diego – Hotel	$61.7	3.1%	0.0%
San Diego – Industrial	$0.0	0.0%	0.0%
San Diego – Multifamily	$09.5	0.2%	0.1%
San Diego – Office	$0.0	0.0%	0.0%
San Diego – Other	$20.5	2.9%	0.0%
San Diego – Retail	$0.0	0.0%	-0.4%
San Diego – Self Storage	$0.0	0.0%	0.0%
San Francisco – San Francisco-Oakland-Fremont, CA MSA	$201.2	0.8%	0.1%
San Francisco – Hotel	$115.0	5.3%	2.5%
San Francisco – Industrial	$0.0	0.0%	0.0%
San Francisco – Multifamily	$0.0	0.0%	-0.3%
San Francisco – Office	$0.0	0.0%	0.0%
San Francisco – Other	$38.6	1.5%	-0.7%
San Francisco – Retail	$47.6	3.9%	-0.2%
San Francisco – Self Storage	$0.0	0.0%	0.0%
San Jose – San Jose-Sunnyvale-Santa Clara, CA MSA	$120.8	0.6%	-0.3%
San Jose – Hotel	$120.8	1.9%	-3.9%
San Jose – Industrial	$0.0	0.0%	0.0%
San Jose – Multifamily	$0.0	0.0%	0.0%
San Jose – Office	$0.0	0.0%	-0.2%
San Jose – Other	$0.0	0.0%	0.0%
San Jose – Retail	$0.0	0.0%	0.0%
San Jose – Self Storage	$0.0	0.0%	0.0%
Seattle – Seattle-Tacoma-Bellevue, WA MSA	$108.6	0.5%	0.1%
Seattle – Hotel	$108.6	8.2%	2.3%
Seattle – Industrial	$0.0	0.0%	0.0%
Seattle – Multifamily	$0.0	0.0%	-0.1%
Seattle – Office	$0.0	0.0%	0.0%
Seattle – Other	$0.0	0.0%	0.0%
Seattle – Retail	$0.0	0.0%	0.0%
Seattle – Self Storage	$0.0	0.0%	0.0%
St. Louis – St. Louis, MO-IL MSA	$263.7	6.4%	-2.6%
St. Louis – Hotel	$42.2	15.2%	-0.4%
St. Louis – Industrial	$0.0	0.0%	0.0%
St. Louis – Multifamily	$04.5	0.3%	-0.2%
St. Louis – Office	$0.0	0.0%	-20.2%
St. Louis – Other	$23.0	4.3%	0.1%
St. Louis – Retail	$194.1	21.3%	1.5%
St. Louis – Self Storage	$0.0	0.0%	0.0%
Tampa – Tampa-St. Petersburg-Clearwater, FL	$226.2	2.4%	-1.0%
Tampa – Hotel	$29.8	4.4%	0.0%
Tampa – Industrial	$0.0	0.0%	0.0%
Tampa – Multifamily	$0.0	0.0%	0.0%
Tampa – Office	$23.7	3.6%	-0.3%
Tampa – Other	$0.0	0.0%	0.0%
Tampa – Retail	$172.8	23.2%	-4.0%
Tampa – Self Storage	$0.0	0.0%	0.0%
Tucson – Tucson, AZ MSA	$165.5	5.1%	-0.2%
Tucson – Hotel	$04.7	1.4%	-0.2%
Tucson – Industrial	$0.0	0.0%	0.0%
Tucson – Multifamily	$0.0	0.0%	0.0%
Tucson – Office	$0.0	0.0%	0.0%
Tucson – Other	$0.0	0.0%	0.0%
Tucson – Retail	$160.9	19.3%	-0.8%
Tucson – Self Storage	$0.0	0.0%	0.0%
Virginia Beach – Virginia Beach-Norfolk-Newport News, VA-NC MSA	$126.8	2.7%	-2.2%
Virginia Beach – Hotel	$0.0	0.0%	0.0%
Virginia Beach – Industrial	$21.2	6.9%	0.0%
Virginia Beach – Multifamily	$0.0	0.0%	0.0%
Virginia Beach – Office	$0.0	0.0%	-0.7%
Virginia Beach – Other	$0.0	0.0%	0.0%
Virginia Beach – Retail	$105.6	12.3%	-10.8%
Virginia Beach – Self Storage	$0.0	0.0%	0.0%
Washington, DC – Washington-Arlington-Alexandria, DC-VA-MD-WV MSA	$518.3	1.7%	-0.2%
Washington, DC – Hotel	$49.2	5.1%	3.5%
Washington, DC – Industrial	$11.1	1.6%	-0.4%
Washington, DC – Multifamily	$0.0	0.0%	0.0%
Washington, DC – Office	$302.6	4.0%	-0.8%
Washington, DC – Other	$44.7	2.8%	0.1%
Washington, DC – Retail	$110.7	3.2%	-1.6%
Washington, DC – Self Storage	$0.0	0.0%	0.0%
Grand Total	$20,328.0	2.9%	-0.7%

About CRED iQ

Industrial Properties Leased by Amazon

CRED iQ

June 8, 2022

In this week’s WAR Report, CRED iQ calculated updated valuations for five industrial properties leased by Amazon. A Bloomberg article reported on May 21, 2022 that Amazon is seeking to reduce its industrial footprint by at least 10 million sf after overexpanding during the pandemic. Amazon will sublet excess space and exit leases where possible to accommodate the company’s initiative. According to the news article, regions of focus include New York, New Jersey, SoCal, and Atlanta, although any leases with near-term expirations in other markets are likely also under consideration. On a high level, the 10 million sf of planned reductions is a microscopic portion of Amazon’s leased industrial portfolio. However, from the perspective of individual landlords or investors, the loss of a high-profile tenant like Amazon could adversely impact returns and present credit risk on a one-off basis. Featured properties include larger warehouse-type facilities such as an industrial park in California, a logistics center in Phoenix, AZ, and a fulfillment center in rural Tennessee as well as last-mile distribution centers in San Francisco, CA and Dallas, TX.

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CRED iQ valuations factor in base-case (most likely), downside (significant loss of tenants), and dark scenarios (100% vacant). For full access to the valuation reports as well as full CMBS loan reporting, including detailed financials, updated tenant information, and borrower contact information, sign up for a free trial here.

McClellan Business Park

6.8 million sf, Industrial/Mixed-Use, Sacramento, CA [View Details]

McClellan Business Park is one of the largest properties by size in CMBS and secures a $358 million mortgage that was originated in November 2020. Amazon is the largest tenant at McClellan Business Park by size and third largest by percentage of base rent. The firm leases a 417,637-sf last-mile distribution facility, one of several buildings in the business park, pursuant to a lease that expires in June 2030. Amazon has two, five-year extension options available at lease expiration, which is about six months prior to loan maturity.

McClellan Business Park is a former Air Force base that was redeveloped primarily for industrial use, but much of the park features other use types such as office, residential, retail, and airplane hangar space. The property was last featured in CRED iQ’s February 2022 report detailing the prevalence of mixed-used collateral in CMBS – Mixed Use Collateral in CMBS Conduits. The property’s former utility as an Air Force base presents some limitations for future redevelopment, caused by environmental factors, should the property need to be repositioned. A recent research report by Academy Securities highlighted some of the other nuances in credit risk facing industrial properties, including a location like McClellan Business Park.

Despite the property’s exposure to Amazon as its largest tenant, the vast size of the property and Amazon’s relatively small footprint (6% of NRA) are mitigating factors of the credit risk posed by potential sublet activity or non-renewal of its lease. Further, Southern California markets such as Los Angeles and San Diego were called out specifically as areas of focus as opposed to Sacramento. For the full valuation report and loan-level details, click here.

McClellan Park - BMARK 2020-B21 — McClellan Park

Property Name	McClellan Park
Address	^{3140 Peacekeeper Way McClellan, CA 95652}
Outstanding Balance	$358,000,000
Interest Rate	3.31%
Maturity Date	12/11/2030
Amazon Lease Size	417,637 sf
Amazon Lease % of NRA	6%
Amazon Lease Expiration	6/30/2030
Most Recent Appraisal	$595,000,000 ($86/sf)
Most Recent Appraisal Date	9/15/2020

Amazon Buckeye Logistics Center

1.0 million sf, Industrial, Phoenix, AZ [View Details]

This 1.0 million sf warehouse in Phoenix, AZ secures a $48.6 million loan and is solely leased by Amazon. The tenant operates pursuant to a lease that expires in August 2028, which is two years after loan maturity in August 2026. The Phoenix MSA was not a market singled out by the company as a focus for scaling back warehouse space; however, the timing of the lease expiration relative to loan maturity could present complications when the mortgage debt needs to be refinanced.

The Buckeye Logistics Center was built to suit Amazon in 2007. The tenant still has four, five-year extension options remaining at the end of its lease term and has added space to the building in the past to accommodate growth. Even still, the loan was structured with a cash management provision to sweep cash in the event of any Sublease Events, which include Amazon or any subtenant going dark or Amazon failing to renew 12 months prior to lease expiration. Cash management structures, such as this one, are useful tools to mitigate binary risk and lease rollover concentration for single tenant properties like the Buckeye Logistics Center. For the full valuation report and loan-level details, click here.

Amazon Buckeye Logistics Center - JPMCC 2016-JP3 — Amazon Buckeye Logistics Center – JPMCC 2016-JP3

Property Name	Amazon Buckeye Logistics Center
Address	^{6835 West Buckeye Road Phoenix, AZ 85043}
Outstanding Balance	$48,587,500
Interest Rate	4.50%
Maturity Date	8/6/2026
Amazon Lease Size	1,009,351 sf
Amazon Lease % of NRA	100%
Amazon Lease Expiration	8/31/2028
Most Recent Appraisal	$75,500,000 ($75/sf)
Most Recent Appraisal Date	5/20/2016

Amazon Fulfillment Center – Charleston

Diamondback Industrial Portfolio

1.0 million sf, Industrial, Charleston, TN [View Details]

This fulfillment center in rural Tennessee is part of a three-property portfolio that secures a $139 million loan. Approximately $48 million of the debt is allocated to this Charleston, TN warehouse. The loan is scheduled to mature in two years, June 2024. Amazon occupied the property pursuant to a lease that expires in September 2026, slightly more than two years post maturity. Amazon has four, five-year lease extension options and has a right of first offer to purchase the property. The right of first offer is an example of the methods at Amazon’s disposal for maintaining flexibility in the usage of its warehouse space. The tenant could just as easily expand as contract space as needed. The property participated in a payment-in-lieu-of-taxes (PILOT) program that expired in 2021; however, Amazon is responsible for paying all real estate taxes. For the full valuation report and loan-level details, click here.

Diamondback Industrial Portfolio - GSMS 2019-GC40 — Diamondback Industrial Portfolio – GSMS 2019-GC40

Property Name	Amazon Fulfillment Center – Charleston
Address	^{225 Infinity Drive NW Charleston, TN 37310}
Allocated Loan Amount	$48,000,000
Interest Rate	3.57%
Maturity Date	6/6/2026
Amazon Lease Size	1,016,148 sf
Amazon Lease % of NRA	100%
Amazon Lease Expiration	9/30/2026
Most Recent Appraisal	$75,600,000 ($74/sf)
Most Recent Appraisal Date	4/18/2019

888 Tennessee

40,000 sf, Industrial, San Francisco, CA [View Details]

This 40,000-sf warehouse located on the bayside of San Francisco, CA secures a $15 million loan. Amazon leases the property pursuant to a lease that expires in April 2027, which is two months prior to loan maturity in July 2027. Amazon has a lease termination option during the last two years of the lease term, which equates to a potential departure as early as July 2025. Amazon pays triple-net (NNN) rent of $40 per square foot for the space, which is opportunistically positioned as a last-mile grocery distribution center in a major metropolitan market. Despite the headwinds facing San Francisco in terms of physical occupancy across multiple commercial real estate sectors, the competitive location of the property is an advantage for the borrower. However, Amazon’s termination option allows flexibility for the tenant to reduce its footprint in the market while presenting potential lease rollover risk for the loan within its maturity window. Further, industrial may not be the highest and best use for the underlying land parcel, adding additional questions for Amazon’s long-term presence at the location. At loan maturity, opportunities may exist for bridge financing or construction financing for a repositioning of the property. For the full valuation report and loan-level details, click here.

888 Tennessee - CGCMT 2017-P8 — 888 Tennessee – CGCMT 2017-P8

Property Name	888 Tennessee
Address	^{888 Tennessee Street San Francisco, CA 94107}
Outstanding Balance	$15,000,000
Interest Rate	3.93%
Maturity Date	7/1/2027
Amazon Lease Size	40,000 sf
Amazon Lease % of NRA	100%
Amazon Lease Expiration	4/30/2027
Most Recent Appraisal	$31,000,000 ($775/sf)
Most Recent Appraisal Date	5/16/2017

6627 Maple

43,635 sf, Industrial, Dallas, TX [View Details]

This 43,635-sf fulfillment center in Dallas, TX secures a $4.1 million loan that matures in May 2026. Amazon occupies the building pursuant to a lease that expires in December 2025, four months prior to loan maturity. Amazon previously signed a five-year extension in December 2020. Similar to previously highlighted properties, the proximity between lease expiration and loan maturity presents potential complications for refinancing at the end of the loan term. The collateral is positioned as a last-mile distribution center, but is an older vintage property, originally constructed in 1956. However, the property was renovated in 2015 prior to loan origination in June 2016. Prior to Amazon’s lease expiration in 2020, the tenant was paying approximately $11.40 per square foot on a triple-net basis. For the full valuation report and loan-level details, click here.

6627 Maple - JPMCC 2016-JP2 — 6627 Maple – JPMCC 2016-JP2

Property Name	6627 Maple
Address	^{6627 Maple Avenue Dallas, TX 75235}
Outstanding Balance	$4,114,675
Interest Rate	4.45%
Maturity Date	5/6/2026
Amazon Lease Size	43,635 sf
Amazon Lease % of NRA	100%
Amazon Lease Expiration	12/31/2025
Most Recent Appraisal	$7,000,000 ($160/sf)
Most Recent Appraisal Date	10/9/2015

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About CRED iQ

June 2022 Delinquency Report

CRED iQ

June 6, 2022

The CRED iQ overall delinquency rate for CMBS exhibited a precipitous decline during the May 2022 remittance period, marking two years of consecutive month-over-month decreases. The delinquency rate, equal to the percentage of all delinquent specially serviced loans and delinquent non-specially serviced loans, for CRED iQ’s sample universe of $500+ billion in CMBS conduit and single asset single-borrower (SASB) loans was 3.32%, which compares to the prior month’s rate of 3.83%. CRED iQ’s special servicing rate, equal to the percentage of CMBS loans that are with the special servicer (delinquent and non-delinquent), declined month-over month to 5.17% from 5.88%. The special servicing rate has declined for six consecutive months. Aggregating the two indicators of distress – delinquency rate and special servicing rate – into an overall distressed rate (DQ + SS%) equals 5.33% of CMBS loans that are specially serviced, delinquent, or a combination of both. The overall distressed rate declined compared to the prior month rate of 5.97%. The overall distressed rates typically track slightly higher than special servicing rates as most delinquent loans are also with the special servicer.

By property type, the delinquency rate declined in May for all sectors with delinquency cures totaling over $500 million by outstanding balance. As one example of a larger delinquency cure, CRED iQ’s May 2022 Market Delinquency Tracker report noted the Supor Industrial Portfolio as a new 30-day delinquency at the time; however, the late payment was a temporary occurrence and the loan paid current this month. Lodging exhibited the greatest month-over-month improvement among all property types with its delinquency rate improving to 6.19%, compared to 7.55% last month.

Retail had the highest delinquency rate (6.32%) by property type for the second consecutive month. Last month, we observed a delinquency crossover event where the percentage of delinquent lodging loans declined to a level below the delinquency rate for retail for the first time since May 2020, when the delinquency rate for lodging spiked to nearly 20%. However, the retail sector continues to get hit with new high-profile delinquencies each month. This month, $100.6 million Arbor Place Mall loan passed its scheduled May 2022 maturity date without paying off. Prior to the maturity default, the loan had been specially serviced since April 2020. Additionally, an $86.5 million loan secured by the Outlet Shoppes at Oklahoma City failed to pay off at its scheduled maturity on May 1, 2022 and transferred to special servicing on May 5, 2022.

Special servicing rates also declined across all major property types this month, exhibiting similar trend characteristics as property-specific delinquency rates. Despite the improvements in special servicing rates, the most recent reporting period was not without major credit developments in the office/mixed-use sector, especially within the Manhattan, NY market. Two notable special servicing transfers of office/mixed-use buildings occurred this month. The largest was a $235 million senior mortgage secured by 285 Madison Avenue, a 511,208-sf office tower located in the Grand Central submarket — as reported by Commercial Observer on May 23^rd. Additionally, the $226.3 million 693 Fifth Avenue loan transferred to special servicing in April 2022 after ongoing issues from the departure of the collateral property’s former retail tenant, Valentino.

CRED iQ’s overall CMBS distressed rate (DQ + SS%) by property type accounts for loans that qualify for either delinquent or special servicing subsets. This month, overall distressed rates for all property types declined. Two of the largest loans added to the distressed category this month, both via transfers to special servicing, were the aforementioned 285 Madison Avenue and 693 Fifth Avenue. For additional information about these two loans, click View Details below:

	[View Details]	[View Details]
Loan	285 Madison Avenue	693 Fifth Avenue
Balance	$235,000,000	$226,340,523
Special Servicer Transfer Date	4/14/2022	4/22/2022

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CMBS – Appraisal Reduction Amount (ARA) Trends

CRED iQ

June 1, 2022

CRED iQ monitored trends in cumulative appraisal reduction amounts (ARAs) for the CMBS universe over the past year, gauging levels of distress and the prevalence of loan workouts and cures. An ARA is a mechanism that reduces the amount of servicer advances for distressed loans, usually secured by collateral with deteriorated valuations. An ARA is a high-level metric for monitoring the approximate level of distress in a CMBS pool and a key function in the management of the waterfall structure of a CMBS securitization. Additionally, the cumulative ARA for a particular deal, among other things, plays a role in determining changes in the controlling certificate holder of a deal and factors into thresholds for determining if a deal needs additional oversight in the form of an operating advisor. Monitoring the cumulative ARA for CMBS transactions can give broad insight into principal loss expectations; however, it is generally viewed that any given individual ARA for a loan is not an accurate predictor for realized losses at final resolution.

The cumulative amount of ARAs in CMBS securitizations trended down significantly over the past 12 months. Cumulative ARAs across conduit, SASB, CRE CLO, and Freddie K CMBS transactions were approximately $1.3 billion lower in April 2022 than in May 2021. The net decline is attributed to multiple factors: REO asset liquidations or loan dispositions, loan workouts, and property value recoveries (in less frequent instances). Conversely, ARA declines are offset by increases caused by property value declines and transfers to special servicing. ARAs totaling approximately $2.3 billion as of May 2021 were assigned to loans that were no longer active as of April 2022 – these loans were either liquidated, resolved, or paid off. There were ARA reductions totaling approximately $1.1 billion from May 2021 through April 2022. Reductions included loans that were worked out and returned to the master servicer, eliminating the servicer’s need to advance debt service and property protection expenses, as well as loans secured by collateral that exhibited recoveries in valuations.

Despite the net decline in ARA over the last year, there were over $2 billion in ARA increases which included loans with newly assigned ARAs and loans secured by properties with deteriorating valuations compared to 12 months prior. Overall, these three buckets — ARAs no longer active due to liquidations or payoffs, ARA increases on active loans, and ARA decreases on active loans — combined to produce the net $1.3 billion decline in cumulative ARAs from May 2021 to April 2022.

Retail properties accounted for 62% of cumulative ARAs in CMBS as of April 2022, which is the majority of appraisal reductions. Cumulative retail ARAs as of April totaled $4.1 billion with most of the total tied to regional malls with outsized debt balances. Office (15%) and lodging (14%) represented the next two highest concentrations of ARAs by property type, each accounting for just under $1 billion in appraisal reductions. While cumulative ARAs for both office and lodging loans have exhibited net declines compared to 12 months prior, the two property types have shown opposing trends over the past three months. Cumulative ARAs for lodging loans have declined in consecutive months since February 2022 while cumulative ARAs for office loans have risen for three consecutive months.

Circling back to regional malls, the retail subtype has been the source of headline risk for CMBS investors with significant variation in opinions on projected losses. Eight of the 10 largest increases in individual ARAs for active loans as of April 2022 compared to a year ago are secured by regional malls. Six of those loans did not have an ARA assigned as of May 2021. The largest individual increase in an ARA for a loan over the past 12 months was associated with the $681.6 million Starwood Mall Portfolio, which is secured by The Mall at Wellington Green (Wellington, FL), MacArthur Center (Norfolk, VA), Northlake Mall (Charlotte, NC), and The Mall at Partridge Creek (Clinton Township, MI). The ARA for the loan was $341.6 million as of May 2021 but ballooned to $474 million as of April 2022, equal to a $132.4 million increase or 39%.

As of April 2022, six of the 10 largest decreases in individual ARAs for outstanding loans over the trailing 12 months were secured by regional malls. The ARAs for all six of these loans were reduced to zero after each loan was returned to the master servicer during the past 12 months. A return of a loan to the master servicer from special servicing is an action that allows an appraisal trigger event to no longer exist, which reduces ARA to zero. Also notable about the largest ARA declines from a year ago is that four of the loans had placeholder ARAs, equal to 25% of the loan balance. Placeholder ARAs are automatic calculations used to reduce servicer advances in the event a timely appraisal cannot be obtained, is determined to not be warranted, or has questionable assumptions in the view of the special servicer. Ironically, the loan with the largest individual ARA decline over the past 12 months is the Starwood Regional Mall Portfolio, similarly named as the loan with the highest ARA increase. This $513.2 million loan is secured by five regional malls – Plaza West Covina, Fr a nklin Park Mall, Parkway Plaza, Capital Mall, and Great Northern Mall — see CRED iQ’s March 2022 Weekly Asset Review. The loan was in special servicing in May 2021 but returned to the master servicer in January 2022 and no longer carries an ARA. However, the absence of an ARA does not preclude an eventual realized loss for the loan. As stated above, an ARA, whether one even exists, and the size of it is generally not an accurate indicator of the final tally of a loan’s performance when it exits a CMBS pool.

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