Retail and hotel 60-89 day delinquencies have begun their upward trajectory and are expected to further accelerate this month. The upward shift was driven by early month reporting from the $846 million Hudson’s Bay Simon JV Trust 2015-HBS* but the number of retail and hotel loans in this category is approaching 200. These are borrowers who mostly last paid in March and have now missed payments for April and May. By contrast, delinquency rates for industrial properties have not changed and are close to zero. This is consistent with Moody’s Analytics REIS’s assessment that industrial properties are likely to weather this storm better than the retail sector. Retail property values are likely to fall in 2020 by twice the magnitude (20.0%) of the distress forecasted for industrial properties (10.2%). The increased shift to online retail brought about by COVID-19 crisis will also likely hurt retail brick and mortar – while benefiting warehouse/distribution properties.
*The underlying loan is backed by 34 cross-collateralized properties leased to twenty four Lord & Taylor and ten Saks Fifth Avenue stores in 15 states. It was added to special servicing in April. According to servicer notes, there is litigation regarding a March restructuring of the loan’s operating lease guarantor.