COVID-19 and CMBS Delinquencies

With minimal new CMBS reporting during the holiday week, we take a deeper dive into our chart (Chart 1) from last week’s article, “CMBS: Monitoring Property Type Relief Requests and Forbearance”, regarding the increasing incidence of COVID-19 mentions in the watchlist servicer comments. In that report, we noted that the vast majority of mentions were, as expected, for the retail and hotel property types. This week we look at the actual percentage of delinquencies for that subset of stressed properties reporting cash flow issues (Chart 2).  Interestingly, nearly 40% remain current. This 40% are likely to have sufficient access to short run cash (think large hotel chains or those receiving government assistance) but are worried about how long they can withstand lockdowns and/or a reduction in consumer spending. Many of the other 60% were properties that contained tenants already on the verge of closing (apparel retailers), and/or restaurants were margins are thin and cash reserves are limited.

Chart 1

Payment Status Distribution for Retail and Hotel Loans with Servicer Comments Mentioning COVID-19

Chart 2

Percent of Loan Balance with Servicer Commentary Mentioning COVID-19 by Property Type

 

Moody’s Analytics REIS continues to monitor rents and vacancies for these two sectors at the macro and micro levels.  Currently, and consistent with the discussion above, hotels and retail are feeling the most pain out of all major CRE sectors. Regions and metros that are tourist-based, (Las Vegas, Orlando) or were hit hardest by the early stage of the pandemic (New York, Detroit) have been most impacted in the short run. Long run expectations are for the geographic pain to spread more evenly as COVID extends its reach, and this will translate into an increase in servicer watchlist loans and related delinquencies for these property types throughout the nation. For now, we have a baseline to monitor.

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