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CMBS transactions incurred approximately $8 million in realized losses in May via the workouts of distressed assets.
CRED iQ identified eight workouts classified as dispositions, liquidations or discounted payoffs in May. Of the eight workouts, five were resolved without a principal loss. Of the three workouts resulting in losses, severities for the month of May ranged from 57.5 percent to 131 percent, based on outstanding balances at disposition.
Aggregate realized losses in May were a fraction of the total from April due to a lower volume of workouts and a smaller average outstanding loan balance at disposition.
The aggregate realized loss total of $7.6 million was also significantly lower than the average aggregate monthly CMBS loss total for the trailing 12 months, which was equal to roughly $125.5 million.
By property type, lodging properties accounted for half of the eight distressed resolutions in May. Three of the four lodging workouts incurred realized losses.
All realized losses in May were sourced to workouts involving hotels. Each lodging workout took approximately three years to be resolved from initial transfers to special servicing.
Resolution timing for these hotels aligned with adverse financial impacts from the onset of the pandemic in 2020 and the subsequent inability of hotel operations to recover in the proceeding years.
The largest individual realized loss was associated with a loan secured by the Courtyard by Marriott Memphis East Lenox, a 96-key, limited-service hotel located 15 miles outside of downtown Memphis. The loan had an outstanding balance of $5.6 million prior to disposition and the distressed workout resulted in a realized loss of $3.2 million, equal to a 57.5 percent severity.
The largest individual loss severity was associated with the Quality Inn & Suites – Greenfield, Ind., a 177-key limited-service hotel. The hotel was part of a two-property portfolio that secured a mortgage with an origination amount of $9.5 million. The loan transferred to special servicing in July 2019 and one of the hotels, flagged as a Holiday Inn Express, was sold through receivership in March 2022.
Proceeds from the Quality Inn sale were applied to the loan’s outstanding balance. The loan, with only the Quality Inn hotel as collateral, was resolved with a $2 million loss against a $1.5 million outstanding balance prior to disposition, equal to a 131 percent severity.
The largest workout by outstanding balance was a $22.5 million mortgage secured by Chase Corporate Center, a 211,257-square-foot multibuilding office property located in Birmingham, Ala. The loan defaulted at its February maturity date and subsequently transferred to the special servicer. While the loan was in special servicing, the borrower was able to negotiate a purchase and sale agreement that resulted in a payoff of the loan without a principal loss.
This two-month resolution was the quickest of all of May’s workouts. Excluding defeased loans, there was roughly $3.4 billion in securitized debt among CMBS conduit, and single-borrower large-loan securitizations paid off or liquidated in May, which was in line with April’s totals. In May, 2 percent of the loan resolutions were categorized as dispositions, liquidations,or discounted payoffs.
The percentage of distressed workouts was markedly lower in the prior month. Loan prepayment remained relatively low in volume in May — roughly 8 percent of the loans were paid off with prepayment penalties, in line with prior months.
Retail had the highest total of outstanding debt payoff by property type in May with approximately 28 percent of the total by balance. Multifamily and lodging had the next highest percentages of outstanding debt payoff with 20 percent of the total for each property type.
The $173.3 million payoff of the 483,569-square-foot Legacy Place power center in Dedham, Mass., and the $160 million refinancing for 541,527-square-foot Cumberland Mall in Atlanta were among the largest mortgages to pay off in May.
Marc McDevitt is senior managing director at CRED iQ
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