• What's In Store for Shopping Malls? 2 years ago

    The shopping mall sector is taking a major hit with the extensive list of store closures and bankruptcies, which could ultimately lead to a decrease in the number of malls around the county. Sandeep Mathrani, chief executive of GGP Inc.,estimates that the number of malls could eventually shrink from 1,100 to 800, which amounts to a quarter of all US malls.

    According to Kroll Bond Rating Agency, Inc. (KBRA), the riskiest properties might be those that host the "triple threat" of tenants: Sears, Macy's and JCPenney. Each of those firms have announced plans to close the doors on hundreds of locations in order to shore up their businesses. KBRA found that within the CMBS universe, 105 loans with a balance of $15.1 billion are backed by properties with the triple threat. Those are all at an elevated risk of default, particularly if their anchors close shop.

    Typically, in-line stores (which pay the bulk of the rent at any mall) sign leases with co-tenancy clauses. If an anchor closes, those in-line stores can demand a reduction in rent, or they can vacate with little or no penalty. (Here comes the domino effect.) When an anchor vacates, a number of in-line stores can follow suit, which would result in a drop in foot traffic and then causes other anchors to leave, and so on. Soon, you could have a 1 million-square-foot echo chamber. But every property has its own story.

    Examine the Foothills Mall in Tucson, Arizona. It was developed in 1983 by Bourn Companies and was positioned as a high-end mall, anchored by now-defunct department stores such as Levy's and Goldwaters. The property hit a rough patch in the early 1990s and was repositioned as an outlet mall. Business boomed and in 2006, the property was purchased for $104 million by a venture of Kimco Realty Corp. and Feldman Mall Properties Inc. The firms financed the transaction with $81 million of CMBS debt.

    Then the real estate and capital markets collapsed. In 2010, it was sold to Schottenstein Property Group for $89.8 million. But its anchors included Linens 'n Things (which no longer exists), Saks Off 5th Ave., and Barnes & Noble.

    The mall was hit again when Simon Property Group opened the Tucson Premium Outlets, and syphoned some retailers including Old Navy, Nike and Carter's. Saks was said to be moving as well. Cash flow at the property collapsed and its CMBS loan went into default.

    Earlier this year, the property was sold back to its developer for $19.8 million. The buzz is that the property will possibly be redeveloped into apartments (though retail and perhaps office space are not out of the question).

    Might a similar strategy be the game plan for other ailing malls? That remains to be seen. But most malls are located in what had been and, in many cases, remain primary locations. Though they may no longer be viable as retail destinations, they might have a second life as something else.

    Take the Hickory Hollow Mall in Antioch, Tennessee as an example. Hickory Hollow was a 1.1 million-square-foot enclosed mall that had been anchored by a JCPenney, Dillard's and Sears. All of three of those retailers vacated, resulting in an exodus of the in-line tenants. It became a "dead mall" with only a dozen retail tenants.

    Four years have passed, and the property has undergone a massive repositioning. Nashville State Community College took a slug of space previously occupied by Dillard's, converting it into a satellite campus. Another part of the property was converted into an ice hockey training facility, and a third into a public library. Yet another portion was converted into an international grocery store.

    With retail caught in the crosshairs of changing consumer needs and preferences, prpoerty owners will certainly begin to weigh their options if the big-box firms are forced to contract.

  • Pair of New Conduits Price at Some of 2017's Tightest Levels 2 years ago

    US stocks rose Friday morning following the release of a solid February jobs report, but later receded due to declines in energy and financial shares. The 235,000 jobs added to the economy last month came in considerably above the Wall Street Journal estimate of 197,000 new job creations, and will likely give the Fed the much-needed stimulus to raise rates again in March. For the month of February, the unemployment rate fell 0.1% to 4.7%, while workforce participation and average wages both continued to tick up. Earlier in the week, concerns over mass retail bankruptcies and closures, as well as the mounting oil glut fueled extensive sell-offs in the retail and energy sectors. The yield on the 10-year Treasury also closed at a 2017 high of 2.60% on Thursday, though it fell two basis points to 2.58% by Friday's closing bell.

    The new issue CMBS market was active this week amidst jitters surrounding weak retail sales and plunging oil prices. Two large conduit transactions priced on Wednesday at levels that were tighter than those seen in the previous two conduits. The $1.09 billion JPMCC 2017-JP5 printed at 92 basis points over swaps for the long AAA, becoming the first conduit deal to feature the horizontal strategy for risk retention compliance. Spreads on the lower bonds of the JP5 transaction were not disclosed since the B-piece portion comprising the bottom 5% of the deal was sold to third-party investor LNR Partners.

    Among the two conduits that priced, the $1.06 billion GSMS 2017-GS5 was highly favored credit-wise. The AAA cleared at 88 basis points over swaps and matched the pricing of the BACM 2017-BNK3 deal from early February, which previously ranked as the tightest conduit pricing for 2017 thus far. The BBB- ultimately cleared at S+315, or 30 basis points tighter than the BNK3 transaction. Originators of the GSMS conduit adopted an L-shaped structure that featured Goldman Sachs retaining a vertical strip amounting to 2.7% of the face value of the bonds, while Rialto Capital took the remaining 2.3% in the form of a horizontal slice. According to Commercial Mortgage Alert, JP Morgan has been putting two other conduit deals together that are slated for pricing in the next few weeks. Both of those deals will utilize the horizontal risk retention option.

    In the secondary CMBS market, trading floors were relatively busy as roughly $585 million was out for bid between Monday and Friday. Cash spreads moved minimally up and down the stack, while the CMBX sector underwent some modest widening in the past week that gave back some of gains from the huge rally on March 1st. CMBX 6/7/8/9/10 AAA spreads were largely flat to two basis points wider. In the BBB- space, spreads moved out around 11 to 24 basis points.

    New Issuance

    CMBS Swap Spreads

    CMBS Swaps

    Legacy LCF Price and Swap Spread Movement


    Top Credit Stories from the Week

    February Payoff Report: Percentage of Loans Paying at Maturity Plumments 

    - California Industrial Portfolio to Special Servicing (CGCMT 2006-C6)

    - Remaining Piece of Collateral for New Jersey Office Portfolio Sold (GSMS 2007-GG10 GCCFC 2007-GG9)

    - Large Chicago Office Loan Sent to Special Servicing (BACM 2008-1)

  • Meager Property Acquisition Numbers via REITs May Continue in 2017 2 years ago

    According to Commercial Property Executive, overall REIT acquisitions dwindled throughout 2016 while dispositions surged. Acquisitions for equity REITs were down 35% year over year, totaling $63.6 billion in 2016. The fourth quarter volume was the lowest quarterly total since the second quarter of 2010, at just $7.9 billion. On the other hand, dispositions soared to a total of $52.2 billion in 2016, which is a 31% year-over year increase and also “the highest annual figure in industry history.” The sky-high disposition volume caused the net acquisition level to plunge to just $11.4 billion last year, compared to $57.4 billion in 2015. It appears that many REITs are “taking advantage of the high prices to shed non-core assets in primary markets,” particularly apartment and office REITs which lead overall disposition activity.

    Healthcare and retail REITs posted the highest gross acquisitions in 2016, as healthcare REITs acquired $9.4 billion and retail acquired $11.4 billion. Both amounts are still significantly down from $22.3 billion and $19.8 billion in 2015, respectively. Almost every major REIT property sector acquired less in 2016, with the exception of single-family homes and data centers. Single-family homes acquired $6.2 billion (a steep increase from $700 million in 2015), and data centers posted $5.2 billion compared to $2.7 billion the year prior.

    National Real Estate Investor recounts that since stock prices for most public REITs fell below net asset values in the second half of 2016, the drop in mergers and acquisitions activity “was a function of REITs lacking sufficient capital and stock price valuations to carry out some of the transactions.” Dispositions were contrarily driven by the record-high prices in core markets, and global investors deploying large amounts of capital to the US.

    On the positive side, the fundamentals for REIT returns still remain healthy. The FTSE/NAREIT All REIT Index posted a 4.2% total return in February, which was slightly above the S&P 500’s 4.0%. However, investors can continue to expect decelerated REIT acquisition activity in 2017, as the underlying market trends of high pricing, rising interest rates, and tighter lending are here to stay for the year ahead.

  • CRE Lending Hits Soft Patch 2 years ago

     Bank share prices enjoyed strong gains for the week on the back of a broader market advance and, more importantly, as a result of interest rate increases. The largest banks’ shares rose by 3.0%, while regional banks’ shares picked up 2.1% for the week. The outlook for bank earnings got a boost from a steepening yield curve. The 10-year Treasury yield jumped by 18 basis points to end the week at 2.492%.

    Expectations for future rate increases ramped up after Fed Chair Janet Yellen gave indications that the Fed would be accelerating its timeline on hikes in interest rates. In a speech on Friday, Yellen cited improvements in the US economy since mid-2016, namely the unemployment rate and the return of inflation, as support for a more rapid increase in the fed funds rate. She indicated that increases during 2017 would be more rapid than the pace during 2015 and 2016.

    Weekly Trend

    Overall commercial real estate lending growth slowed in the third week of February, with the pace of growth in all three of the major CRE segments declining. Construction and land development lending contracted at a -6.8% annualized rate, the lowest rate in the last twelve months. Multifamily mortgage lending inched ahead at a barely positive 1.2% annualized growth rate. Commercial mortgages slowed to a 4.0% annual growth rate. The weekly figures for all three of the major CRE segments were below the year-to-date trend so far during 2017.


    Total commercial real estate lending growth for the year-to-date slowed to 8.0%. The annualized growth rate for construction and land development fell to 11.8%. Multifamily properties’ annualized growth rate for the year-to-date fell to 6.0%, well below the 12.7% annual pace in 2016. The annualized year-to-date growth rate for commercial mortgages declined to 7.6%.



  • Wall of Maturities Update: March 2017 2 years ago

    The CMBS market will “spring” into action in March and prepare to digest $6.7 billion of maturing debt that is due this month. March’s total is the lowest of the next six months, as the amount of CMBS maturing by month only augments once April begins. What’s left to refinance are loans issued towards the end of 2006/2007 commercial real estate bubble, and whether or not the properties behind those loans meet today’s credit standards is unclear.

    Historical Perspective

    Based on a February 2017 snapshot,more than $235.3 billion in CMBS loans have paid off since January 2015 in any manner, including disposals with losses. Those disposed loans were written off with cumulative losses of more than $9.6 billion at an average loss severity of 44.74%.

    In the 12-month period between March 2016 and February 2017, $114.2 billion in securitized mortgage debt was liquidated, 7.62% of which suffered losses at resolution. Those loans that were closed out with losses were written down at an average severity of 46.68%. Based on underwritten maturity dates for loans that were scheduled to pay off during this time frame, 981 loans totaling $29.4 billion are still outstanding.

    Outlook: Upcoming Maturities

    Over the next 6 months through August 2017, roughly $61.1 billion in CMBS debt will come due. 5.92% of that total is past due on payment, and 10.54% is in special servicing. As the two dominant property types, office and retail loans comprise 28.94% and 26.51% of the volume maturing during this time frame, respectively.

    Out of the $6.7 billion in CMBS debt that is scheduled to mature in March, over 9.74% has fallen into default (categorized as 60+ days delinquent, in foreclosure, REO, or non-performing balloons), while 14.23% has been transferred to special servicing. Of all of the debt maturing in March, 8.79% is carrying an appraisal reduction amount (ARA) that could lead to potential losses at resolution.

    The largest loan scheduled to mature in March is the $1.07 billion Five Times Square, which is evenly split into two notes. Those two loan pieces respectively comprise 28.18% and 21.95% of the balance for two separate 2007 deals.


    This is the second iteration of the report Trepp will publish every month until the end of 2017 in an effort to monitor the wall of maturities as the market enters the home stretch of scaling this large amount of maturing CMBS debt.

  • Neglected Commercial Spaces: How Big Is the Problem? 2 years ago


    BuildFax recently published a study about neglected commercial spaces. We looked at the more than 5.2 million commercial properties in our database and took a representative sample, where we have more than 30 years of data coverage. We flagged these properties for permit activity in 10, 20, 30 and 30+ year time frames. The results highlight:


    • The surprising number of neglected commercial structures in the US (buildings that haven’t had a permitted update in over 30 years)
    • A complete breakdown of neglected, aging, and maintained commercial buildings


    To read the whole thing, click here or click the button below.


    The post Neglected Commercial Spaces: How Big Is the Problem? appeared first on BuildFax Blog.

  • 5 Largest CMBS Loans by Balance That Became Delinquent in February 2 years ago

    The Trepp CMBS Delinquency Rate, which has been moving steadily higher over the last 12 months, continued to climb in February. January resulted in a rare pause of the reading's growth, but the rate resumed its upward trend in February. The delinquency rate for US commercial real estate loans in CMBS is now 5.31%, an increase of 13 basis points in February.

    Over $1.5 billion in office loans turned delinquent last month, including the five largest new delinquencies by balance. Our list of those properties is below.

    1. TIAA RexCorp New Jersey Portfolio

    The largest loan to become delinquent in February was the $270.4 million TIAA RexCorp New Jersey Portfolio. The portfolio is backed by six northern New Jersey offices – three in Madison, two in Short Hills, and one in Morristown – that total over 1 million square feet.

    In October 2016, the loan was transferred to special servicing due to an imminent balloon/maturity default. Per servicer commentary, the borrower “felt that the value of the collateral would not” make a refinancing at maturity possible. The portfolio was tagged as a “non-performing matured balloon” last month. However, Commercial Real Estate Direct recently reported that Mack-Cali Realty Corporation agreed to purchase five of the six collateral properties (as well as one other North Jersey office) for $395 million. The Morristown property is reportedly not part of the sale.

    The TIAA RexCorp New Jersey Portfolio is the second-largest loan behind GSMS 2007-GG10, as it comprises 7.91% of the remaining collateral. Just 16.6% of that deal’s balance is backed by delinquent debt.


    2. TIAA RexCorp Long Island Portfolio

    Another TIAA RexCorp Portfolio comes in at second on February’s list, but this note’s collateral is located about an hour away from New Jersey (maybe even three hours, depending on traffic). The $235.9 million TIAA RexCorp Long Island Portfolio is backed by four offices in Melville, New York, and one in Uniondale.

    The Long Island portfolio also became a non-performing matured balloon last month, as the borrower expressed an “inability to pay the loan in full at (its) maturity date” of 2/6/2017. However, watchlist commentary from January states that a refinancing is in the works. The most loan recent financials are as of September 2016, when occupancy was 95% and DSCR (NCF) was 1.46x. DSCR has increased in each of the past four years. Of all five properties that serve as collateral for the portfolio, the largest overall tenant is Citibank with 202,930 square feet at 68 South Service Road in Melville.

    The portfolio makes up 29.7% of the remaining balance behind GCCFC 2007-GG9, making it the largest loan in that deal. 94.6% of the collateral (by balance) for the 2007 securitization is currently marked as delinquent.


    3. TIAA RexCorp Plaza (A Note)

    You’re not seeing triple: the third-largest loan to become delinquent in February almost shares the exact same name as the two larger notes. Though the $150 million A note for the TIAA RexCorp Plaza serves as debt for a different property, it is backed by a 1.06 million-square-foot office in Uniondale, New York that isn’t far from the Uniondale office behind the TIAA RexCorp Long Island Portfolio.

    This A note was marked as non-performing beyond maturity in February for a missed balloon date. The $37.3 million B note behind the plaza was tagged with the same delinquency status last month. January watchlist commentary stated that the borrower “is working with two lenders to refinance the property and anticipates making a final choice between the two in mid-January.” The servicer has not yet provided an update as to this development. Through September 2016, DSCR (NCF) and occupancy clocked in at 1.93x and 91%, respectively. The building’s lead tenant is Farrell Fritz P.C. with 10.1% of the space, which amounts to 107,701 square feet.

    The plaza represents 4.39% of the balance behind GSMS 2007-GG10, a deal which has 16.6% of its remaining collateral in delinquency.


    4. Skyline Portfolio (B Note)

    The last piece of once-current debt behind the massive Skyline Portfolio has turned delinquent. This month, it’s the $131.2 million B note behind BACM 2007-1 that has fallen into delinquency.

    After being listed as going through the foreclosure process in September and October 2016, the note was made current in the following three months. However, the asset has been returned to the lender and is now REO. Four of the six pieces behind the portfolio are REO, while two slices that back JPMCC 2007-LDPX are still “in foreclosure.”  The eight offices that collateralize the debt were foreclosed on in October. The B note isn’t carrying an appraisal reduction at this time, but most of the other Skyline pieces are.

    The note comprises 28.7% of the collateral behind BACM 2007-1. 81.8% of that deal’s balance is backed by delinquent loans.


    5. Omni Marathon Reckson

    The final loan on February’s list is the $108 million Omni Marathon Reckson. Collateral for the note is a 660,223 square-foot office in Uniondale, New York.

    Just like the loans that inhabit the first, second, and third spots on February’s list, the Omni Marathon Reckson became a non-performing matured balloon last month due to the borrower's “stated inability to pay the loan in full at maturity.” Property financials have been up and down since securitization. DSCR (NCF) fell from 1.42x in 2008 to 0.55x in 2012, but then rebounded to 1.42x at the end of 2015. The most recent financials measure the first nine months of 2016, which peg DSCR and occupancy at 1.16x and 100, respectively. The property was appraised for $184 million in 2007, and features Healthplex, Inc. as the lead tenant with 11.7% of the square footage.

    The $108 million loan backs 13.6% of GCCFC 2007-GG9, the same deal collateralized by the TIAA RexCorp Long Island Portfolio that appeared earlier on our list.


    For more information on newly delinquent loans and the current rate of CMBS delinquencies, send us a note at

  • The DOB is Updating their Penalty Schedule, and There’s A Huge Possible Change 2 years ago

    If you’re familiar with OATH and the Environmental Control Board, you may be familiar with agency penalty schedules. Each NYC agency tied to ECB-associated hearings has a respective penalty schedule that outlines different infractions and their respective fines. While these penalty schedules previously existed under OATH’s section of the RCNY (Rules of the City of New York), they are now being moved to each individual agency’s chapter.

    This move is being done for a few reasons:

    • Penalty sheets will be closer to the actual agency regulations, making them easier to find
    • Removing OATH/ECB’s need to approve proposed or amended penalties will speed up agency rule-making

    So what does this mean for you? While many of the previous agency penalty moves were administrative in nature and had little immediate impact on owners and managers, the DOB’s adjustment is particularly interesting for one big reason.

    Tucked into the proposed rule (read here) is new language for Section 102-01, Title 1 of RCNY, referencing reduced penalties for defaulted DOB violations. Here’s the exact proposed language:

    (j) Reduction of default penalties upon proof of compliance. With the exception of daily penalties charged under section 28-202.1 of the Administrative Code for continued Class 1 violations of sections 28-210.1 or 28-210.3 of the Administrative Code, any imposed Default Penalty, Aggravated l Default Penalty or Aggravated II Default Penalty will be reduced by one-half (1/2) after: (1) Respondent files an acceptable certificate of correction with the Department; and (2) ECB receives notification from the Department of its acceptance of such certificate of correction.

    According to the proposed subdivision, default penalties and repeat default penalties (with some exceptions) would have the fine reduced by half once correction has been filed and approved. Per DOB requirements, this involves submission of a Certificate of Correction directly to the agency (beyond and in addition to any proof provided at the hearing).

    While this is possibly huge news, there’s also a ton of unanswered questions. Will this be retroactive? What is the timeframe for this reduction? How can named respondents actually take advantage of this? We’ll keep you posted on any additional information provided by the DOB. In the meantime, this adjustment is open for comments via e-mail, fax, and mail, and an in-person session on Wednesday, March 29th. Stay tuned to the blog for additional updates as this change is adjusted, adopted, and promulgated.

    Correcting DOB-ECB ViolationsWant to brush up on correcting a DOB-ECB violation? Check out SiteCompli’s Knowledge Center for basic steps and how-to’s

    The post The DOB is Updating their Penalty Schedule, and There’s A Huge Possible Change appeared first on SiteCompli.

  • Growth in Permian Production to Stress Outbound Infrastructure in Late 2017 2 years ago

    As the price of West Texas Intermediate steadies in the $50-$55 per barrel (bbl) range, oil rig counts affirm operator commitments to growing production immensely in the Permian Basin over the next two years. Nearly half of all U.S. drilling rigs returned to service since rig counts hit a low in May 2016 have gone to work in the Permian Basin.

    Total U.S. oil rig counts bottomed at 323 rigs in May 2016, as a result of crude prices falling to below $30/bbl. In contrast, oil drilling activity in the U.S. has trended up in the last year on an uptick in WTI prices and OPEC announced production cuts. Since the low, oil rig counts increased by 313 rigs, close to a 100 percent rise. 

    The Permian’s rig count was 295 on February 29, 166 higher than the low of 129 active rigs in the basin in May 2016. The theme of recovery has taken firm root, and drilling activity should increase through at least 2017, based on the current forward price curves for natural gas and oil. Genscape expects an additional 33 rigs to be added between now and the end of the year, bringing the total Permian rig count to 328.

    As ever-increasing amounts of capital flow into robust drilling programs in the basin, Permian production is set to grow from around 2.2 million bpd to 2.8 million bpd by year end 2017, according to Genscape’s Spring Rock Production forecast. This incremental 600,000 bpd growth will be nearly matched in 2018 to the tune of a 500,000 bpd of expansion. Given that supply in the basin could see up to 50 percent growth between now and 2018, the natural question is: Will takeaway infrastructure be adequate to support such significant growth, and how soon might a lack of adequate takeaway become a constraint?

    Permian Pipeline Infrastructure to Expand

    Giving credence to the immediacy of this question, there have been several announcements in recent weeks to expand existing pipeline infrastructure. Magellan Midstream Partners announced plans to expand their 300,000 bpd Colorado City, TX-to-Houston BridgeTex pipeline by 100,000 bpd by Q2 2017, in a press release on January 24. Plain All American Pipeline announced plans to expand the 250,000 bpd McCamey, TX-to-Gardendale, TX, Cactus Pipeline system to 390,000 bpd by Q3 2017, according to a January 18 news release.

    In their 4Q earnings call, Sunoco Logistics announced plans to expand their system by 100,000 bpd with the Permian Express 3 project expected to be in service in mid-2017. According to Sunoco, they also have the ability to add an additional 200,000 bpd utilizing existing infrastructure and can be staged as needed. Currently, Sunoco’s 300,000 bpd West Texas Gulf, 150,000 bpd Permian Express I and 200,000 bpd Permian Express II pipelines transport barrels from the Permian to Longview and Nederland, TX, markets.

    Also in their 4Q earnings call, Enterprise Products Partners said it both expanded and moved up the start date for their new Midland-to-Houston pipeline. The company expanded the capacity from 300,000 bpd to 450, 000 bpd and moved up the start date from mid-2018 to Q4 2017. 

    Tightening Balance between Production and Takeaway Capacity

    Based on the consensus evident in these midstream announcements and Genscape’s production outlook, the balance between production and outbound takeaway capacity will be tightening by the second half of 2017. Tighter pipeline capacity will result in a widening crude price differential between Midland and Cushing, which could widen enough to support rail economics to the Gulf Coast. However, the duration and magnitude of the impact to the Midland-Cushing spread will ultimately be determined by the timing of new infrastructure and when incremental production comes online.  

    Service Costs Keep Rising

    The other primary, imminent concern on the speed of Permian production growth is rising oil production service costs. Operators continue to push the boundaries in the Permian on both the drilling and completion side. However, rising costs, especially for hydraulic fracturing services, continue to increase with activity. Many operators have been able to neutralize the effect of increased service costs on well economics via gains in both well and rig productivities. However, many operators are reporting between five and 15 percent increases in service costs.

    As evidenced by strengthening rig counts and operator drilling plans, the Permian Basin is the area most poised for production growth in the United States over the next two years. The clearest threats to this production growth are resource constraints (labor availability, equipment availability, and increasing OFS prices) and takeaway infrastructure. Given the announcements by several midstream firms to expand takeaway infrastructure by the end of 2017, as well as productivity gains offsetting rising service costs at the moment, Genscape believes that Permian producers have every incentive to drill their next well. 

    Genscape's U.S. Crude Oil Production Report provides the most detailed, accurate five-year oil production report in the industry. The report includes proprietary data from over 20,000 individual wells, aggregated by basin and crude quality, and adjusted weekly to forward curve. To learn more, or to request a trial of Genscape's U.S. Crude Oil Production Report, please click here.

  • CMBX Spreads Tighten After Reaching Recent Highs 2 years ago

    Secondary CMBS trading was subdued in the beginning of the week as industry leaders gathered at the Structure Finance Industry Group (SFIG) Conference in Las Vegas, but gained momentum with volume reaching $550 million between Monday and Friday.

    As a result of President Trump’s address to Congress on Tuesday evening, which provided support for a pro-business agenda, US stocks surged to new highs. The rally was boosted by market optimism surrounding the new administration’s plans to reduce taxes, pull back regulatory requirements, and increase fiscal spending. Other market indicators that implied a positive economic outlook and potential for a March rate increase further fueled the strength in the equity markets. The Dow soared above 2100 points for the first time on Wednesday, while the S&P 500 closed higher on another week of gains.

    The CMBX market rebounded from the immense sell-off in February with considerable gains across the board. For CMBX 6/7/8/9/10, AAA spreads tightened two to three basis points within the week. After several weeks of extensive widening at the bottom of the credit curve, BBB- spreads for series 7-10 came in between 38 and 43 basis points, while series 6 tightened by about 12 basis points. Spreads moved in by 21 to 48 basis points in the BB space. In the cash market, spread gains totaled five basis points at the top of the stack and over 20 basis points at the bottom.

    CMBX spreads have been highly volatile in the past 30 days and hit their highest mark of the year on February 24th. Starting in late January, BBB- spreads for CMBX 6 moved out by 210 basis points to reach their recent peak, while those spreads blew out 134 basis points in series 7. Further down the curve, CMBX 6 BB spreads were 294 basis points wider from their mark at the end of January, and 192 basis points wider in CMBX 7.  

    The $634.9 million WFCM 2017-RC1 deal priced on February 28th, printing at 95 basis points over swaps for the LCF AAA class and 450 basis points for the BBB-.  The conduit transaction grabbed some headlines last week when it was revealed that Argentic Real Estate Finance had voluntarily agreed to hold the B-piece portion of the deal for five years, despite not being the risk retention party. This week’s Commercial Mortgage Alert reported that two other conduits are currently in the queue for pricing. JP Morgan has been marketing the $1.09 billion JPMCC 2017-JP5 in the past few days, which will become the first conduit transaction structured under the horizontal risk retention option. B-piece investor LNR Partners will be holding the 5% horizontal slice at the bottom of the deal. The transaction is expected to be favorably received by investors, as early whisper talks suggest that AAA spreads could clear at 92 basis points.

    New Issuance

    CMBS Swap Spreads

    CMBS Swaps

    Legacy LCF Price and Swap Spread Movement


    Top Credit Stories from the Week

    -Runoff for Seattle/DC Office Portfolio Nearly Complete (MSC 2007-IQ14 & more)

    - February Loss Analysis: Volume Remains High Thanks to Large Office Disposals 

    - US CMBS Delinquency Report: Delinquency Rate Resumes Ascent in February 

    - More on February Losses: Property Type and Loan Size

  • REITs Dip Slightly in February 2 years ago

    According to NAREIT, the FTSE NAREIT All REIT Index fell back slightly last month, as it lost 0.3%. In comparison, the S&P 500 Index dipped 0.1%. However, the FTSE NAREIT All REIT Index for 2017 year-to-date is down 1.3%, while the S&P 500 Index has dropped 2.8%.

    Infrastructure REITs was last month's top performing sector, which posted 9.01% total returns. According to Zack’s, the government’s plan to borrow and spend an immense amount of money on infrastructure projects should benefit the REIT sector, boosting rent and occupancy levels in the process. Single-family homes also soared in February with a 7.93% return. Seeking Alpha reports that home sales and prices are off to a strong start in 2017, with existing home sales exceeding expectations in January despite elevated mortgage rates. There is also little growth in the single-family construction market, and low inventory historically correlates to home price appreciation. Self-storage and timber REITs also performed well last month with 7.05% and 7.01% returns, respectively.

    Contrarily, lodging was last month’s lowest performing REIT sector, totaling -1.22% returns. Hotel supply is expected to surge this year, which will put pressure on room rates. The lodging REIT sector may already be starting to suffer from oversupply, as 2017 YTD returns are down -3.76%. Shopping center REITs also dipped last month with -0.85% returns.

    On the positive side, Q4 2016 earnings reports were more or less in line with many pundits’ expectations. A Zack’s article states that REIT earnings have “not been as bad as anticipated given Trump’s unexpected victory, a rise in 10-year US Treasury rates, and an unstable global market.” According to Edward Jones analyst Roy Shephard, “REITs are in “a good environment…relative to other financials in terms of their financing cost” as longer-term interest rates remained low and the yield curve flattened in February. So despite the slight pullback in February, the broader REIT sector seems to be standing on solid ground. However, Shephard noted that one thing to watch in the near future is the widening of spreads between the 10-year Treasury note and REITs’ borrowing rates in the bond market, which may particularly affect REITs with lower credit ratings.

  • Hotel Market Fundamentals Prepared for Slowdown 2 years ago

    The hotel market has experienced super-charged growth over the past five years, but is looking at a substantial slowdown as a result of the increase in the supply of rooms.

    The growth in supply has been picking up speed as operating fundamentals have consistently improved, but it’s no surprise that fundamentals would be soon pressured. Thus far, the growth in supply has remained below the historic average of about 2% annually. Lodging Econometrics reports that developers were expected to bring 841 hotels with 95,346 rooms online throughout the country last year.This year, that expectation increases to 1,056 properties with 118,638 rooms, which would just about match the historic average. But that's enough to squeeze operators' ability to keep occupancy at elevated levels.

    RLJ Lodging, who owns 122 full-service hotels with 20,100 rooms, recently said it expects occupancy at its properties to decline this year. Still, the company anticipates revenue per available room (RevPAR, which combines occupancy with room rate), to increase modestly.

    Overall, RevPAR has grown by 5.7% annually over the past five years. The projected growth in supply is expected to cut that sharply, with CBRE Hotels forecasting growth of 2.2% annually for the next five years. That's in line with STR's projection of 2.5% RevPAR growth this year and 2.6% next year.

    The growth in operating fundamentals that high-priced properties have enjoyed is slated to come to an end. Going forward, economy properties are expected to be growth leaders, with CBRE projecting a 2.8% growth in the subsector's RevPAR in the coming years.

    Last year, the national occupancy rate improved by 10 basis points to 65.5%, and average daily rates increased by 3.1% to $123.97, resulting in a 3.2% increase in RevPAR to $81.19.

  • CMBS Delinquency Rate Resumes Ascent in February 2 years ago

    The Trepp CMBS Delinquency Rate, which has been moving steadily higher over the last 12 months, continued to climb in February. January resulted in a rare pause of the reading's growth, but the rate resumed its upward trend in February. The delinquency rate for US commercial real estate loans in CMBS is now 5.31%, an increase of 13 basis points in February. The reading has consistently climbed over the past year as loans from 2006 and 2007 have reached their maturity dates and have not been paid off via refinancing.

    The rate is now 116 basis points higher than the year ago level. The reading hit a multi-year low of 4.15% in February 2016. The all-time high was 10.34% in July 2012. The February reading is the highest since August 2015. Office delinquencies helped push the rate higher in February. In fact, delinquency readings for four of the five major property types fell, but a large spike in the office sector more than offset those gains.

    View a year-over-year comparison of delinquency rates by property type

    In December, we noted that "it is hard to see the rate going down anytime in the near future." That is a prediction we are comfortable standing by for at least the next few months as the "wall of maturities" plays out.



  • Top 5 Reasons to Visit SiteCompli at BNY 2017 2 years ago

    The BuildingsNY show is right around the corner! Here are the top reasons you need to stop by the SiteCompli booth between March 21-22:

    1. It’s free!

    Bringing your whole team won’t cost a dime – this event is free of charge. Register now for this no-cost opportunity!


    2. Take Charge on Your Tenant Communications

    Come by SiteCompli Booth 331 and see a demo of our Tenant Communications suite, a new set of solutions for automated triage & recording of tenant requests, over the phone and online. Spots are limited, reserve yours now!


    3. Get Educated to Get Ahead

    Get the inside scoop with SiteCompli VP of Customer Success, Jonathan Fertel’s seminar “Building Regulations & You: How to Manage Challenging Compliance Issues and Protect Your Brand”. You’ll learn the best tricks in navigating the complicated world of compliance and find out what’s on the horizon for 2017. This free educational seminar takes place on the Innovation Stage on Tuesday, March 21 at 1:15pm and requires no prior sign-up.


    4. Pick Up Your 2017 Violations Companion Guide

    Our newest Violations Companion Guide is hot off the press and available at our SiteCompli booth. It’s first come, first serve, so drop by to pick up one of the limited printed copies! You can reserve yours here.


    5. Meet the SiteCompli Team

    If you liked us over emails, you’ll love us in person! Join the fun at the SiteCompli booth and talk face-to-face with members of our team. We can’t wait to meet you! When We'll Be ThereSiteCompli Booth 331 will be open Tuesday March 21 from 10am-5pm and Wednesday March 22, 10am-4pm.

    The post Top 5 Reasons to Visit SiteCompli at BNY 2017 appeared first on SiteCompli.

  • BuildFax Participates in Local Food Bank Volunteer Day 2 years ago

    The team had a blast last week at MANNA FoodBank, participating in a volunteer day.

    Our crew donned spiffy hairnets (did you know hairnets are also known as synthetic bouffants!?!) and weighed, bagged, and boxed 2,000 pounds of brown rice to help feed hungry families.

    It’s no wonder a team so adept at processing data would be just as awesome at processing rice. We finished an hour ahead of schedule!

    The post BuildFax Participates in Local Food Bank Volunteer Day appeared first on BuildFax Blog.

  • BuildFax Recognized with HousingWire Tech100 Award 2 years ago

    HousingWire announced the winners of the HousingWire Tech100 awards today.

    BuildFax is honored to be listed among these groundbreaking companies that are leveraging technology to propel the housing industry to new levels of innovation and excellence.


    The HousingWire Tech100 awards were created to draw attention to the critical role technology firms play in catering to the needs of the constantly evolving housing industry. The companies in the list range from real estate to investments to mortgage lending.


    BuildFax was nominated for its breadth of property insights and massive depth of data: More than 23 billion data points on residential and commercial properties, covering over 70% of the US population. BuildFax brings in 1,000 new property insights derived from building permit data every minute, which can predict loss and tell the story of property history, improvements, and changes over time.


    For more info on BuildFax’s property history database, click here.

    The post BuildFax Recognized with HousingWire Tech100 Award appeared first on BuildFax Blog.

  • CRE Lending Resumes Growth 2 years ago

    Bank share prices fell slightly for the week, as earnings season has passed and investors start to take a critical look forward to prospects in 2017. Shares of the largest banks fell by -0.6% for the week. Regional banks’ shares were down by -0.9% for the week. That came against the backdrop of a broader market advance of 0.7% and a drop of 10 basis points in the 10-year Treasury yield.

    Economic conditions are contributing to loan demand (see below), although the yield curve has leveled off somewhat recently, which will impact net interest margins. Also, regulatory reform is still expected in 2017, but it might take a back seat to tax and health care overhauls.

    Investors will also start to look forward to CCAR results. The large banks will submit stress test results and capital plans by April 5 and the Fed will announce their results by the end of June. Over the past few years, the number of banks requesting dividend increases has grown, a trend that will likely continue in this cycle.

    Weekly Trend

    Overall commercial real estate lending growth rebounded in the second week of February, with growth in all three of the major CRE segments. Construction and land development lending grew at a 23.5% annualized rate, the fastest pace so far in 2017. Multifamily mortgage lending grew at a modest 2.5% annualized growth rate. Commercial mortgages turned positive again, with a 9.2% annual growth rate. The weekly figures for construction and land development and commercial mortgages were above the year-to-date trend so far during 2017, while the figures for multifamily mortgages were below trend.


    Total commercial real estate lending growth for the year-to-date rose to 8.8%. The annualized growth rate for construction and land development rose to 14.2%. Multifamily properties’ annualized growth rate for the year-to-date fell to 7.7%, and is well below the 12.7% annual pace in 2016. The annualized year-to-date growth rate for commercial mortgages increased to 8.0%.




  • NYH Gasoline Stocks Fall from Record High as Supply Decreases, Refineries Perform Maintenance 2 years ago

    Gasoline stocks in New York Harbor (NYH) are expected to continue to decline from a recent record high due to increased driving demand during the spring months and planned upcoming refinery maintenance.

    Gasoline stocks in NYH declined 4 percent, or 899,000 barrels (bbls), during the week ending February 17, 2017, and dropped from a record high of 21.1 million bbls during the week ending February 10, according to Genscape data showed on February 21. On February 22, the U.S. Energy Information Administration (EIA) reported a 933,000-bbl draw in PADD 1B gasoline inventories for the same week.

    The NYH stock draw was likely due, in part, to scheduled spring refinery maintenance. This maintenance, coupled with expected seasonal growth in gasoline demand, may continue to provide relief to a gasoline glut along the U.S. East Coast.

    Monitored East Coast refineries have operated near capacity since January. The 238,000 bpd crude distillation unit (CDU) at Phillips 66’s 238,000 bpd Bayway, NJ, refinery was shut on February 7 for planned maintenance, reducing gasoline supply to the area, according to Genscape’s North American Refinery Intelligence report. It is expected to return to service by March 29 according to a February 1 report from Reuters.

    Gasoline inventories at Phillips 66’s Bayway storage terminal also fell during the week ending February 10. According to Bloomberg, PBF Energy is expected to shut gasoline-making units at its 182,200 bpd Delaware City, DE refinery this spring. In addition to refineries located in NYH, Genscape monitors all refineries in the larger PADD 1 region.

    NYH gasoline stocks increase on trend

    A historical analysis of Genscape’s three-year NYH history showed that NYH gasoline stocks were expected to rise in early February. Stocks rose 5.2 million bbls, increasing capacity utilization by six percent to 65 percent between December 9, 2016, and February 10, according to Genscape.  

    NYH gasoline stocks reached a record high for week ending February 10, building two million bbls from the previous week, according to Genscape’s February 14 New York Harbor Product Storage report.

    The NYMEX RBOB front month futures contract fell $0.03/gal to $1.54/gal on February 14 in the two hours following the 10 a.m. (EST) release of the report.  

    The following morning, the EIA reported the highest recorded inventory levels in their 27-year history of PADD 1B and the greater PADD 1 coverage, building 2.2 million to 42.3 million bbls and 2.4 million bbls to 76.3 million bbls, respectively. Two hours after the EIA’s 10:30 a.m. (EST) data release, RBOB front month futures contract fell $0.01/gal to $1.54/gal. 

    This year appears to be following a similar trend to 2015 and 2016, which showed stock builds through February. Gasoline inventories typically peak in mid-February (Figure 1: weeks 7-9) and decrease through the spring. The February 10 build was the largest in the past year to date and the second largest build in Genscape’s NYH product history, which started on November 15, 2013. The largest build was observed for week ending October 2, 2015, as terminal operators transitioned to storing winter-grade gasoline. 

    Gasoline demand set to increase 

    Gasoline demand is mostly seasonal, and motorists typically drive less in the winter than in the summer months. Year-over-year PADD 1B demand for gasoline was below 2016 levels for week ending January 20, (Figure 2: week 3), according to Genscape’s Supply Side rack-level data

    Gasoline demand fell in the PADD 1B region for week ending February 10, contributing to the record-high stocks monitored that week. Genscape’s Supply Side data serves as a gauge for U.S. gasoline demand by monitoring the hourly wholesale volumes and prices of 72 percent of total gasoline loading racks across the country.

    Lower winter gasoline demand often corresponds with a contango structure in the RBOB futures contract spreads. When demand is low, it is typically beneficial for market participants to store gasoline until prices are higher in the coming months.

    The February 10 gasoline stock build occurred as the incentive to store barrels increased. The RBOB front month-to-second month spread widened $0.18/gal, closing at $0.20/gal, in the two weeks prior to the February 10 report date.

    As the refined products glut recedes on the East Coast perhaps further relief is in sight on the expectation of increased gasoline demand during the onset of driving season. Genscape will continue to monitor events in the in the refined products market, seeking to provide transparency in changing market conditions.

    Genscape’s New York Harbor (NYH) Product Storage Report delivers critical storage level insight for refined product physical inventories aligned with the NYMEX RBOB and ULSD futures contracts. Subscribers to the report can compare inventories for 26 terminals and develop a custom view of the gasoline, ethanol, jet fuel, and distillate markets a full day ahead of EIA data releases. To request a free trial of the report, please click here.

  • Retail Roundup: HHGregg to File for Bankruptcy; Family Christian Closing All Locations 2 years ago

    If J.C. Penney’s announcement that the firm will close up to 140 stores wasn’t enough, a pair of smaller retailers proclaimed some news of their own.

    Per various reports, appliance and electronics retailer HHGregg, Inc. is preparing to file for bankruptcy and the filing could come as early as March. The firm has been in business for over 60 years and operates over 200 stores. Its stock price is down more than 75% this year and the stock itself could become delisted.

    We’ve included the 10 largest loans by balance to feature HHGregg as a top five tenant below, and we pulled together a list of all CMBS loans backed by properties where HHGregg is a top five tenant. To be sure, many properties with exposure involve the retailer occupying a modest amount of in-line space at a mall. Which is why our screenshot of the largest loans with HHGregg exposure But there are some smaller loans for which HHGregg is the sole occupant or a major tenant. An example of each of those would be the $7 million h.h. gregg - Boca Raton note (HHGregg is the sole tenant) and the $8.0 million Franklin Square Plaza loan (HHGregg is the second-largest tenant with 23.3% of the space).

    Elsewhere, several news reports noted late last week that Family Christian Bookstores will shutter all 240 of its stores. The firm has been around for 85 years and, according to reports, struggled after coming out of bankruptcy a few years back. (One story from the Lexington Herald Leader is here).

    We also put together a page for our In the Spotlight section that looks at CMBS loans backed by properties where Family Christian is a top five tenant, along with a screenshot of the 10 largest loans below. You can access the list here.

    In many cases, Family Christian is the fourth- or fifth-largest tenant behind these properties and takes up less than 10% of the space in the collateral.

  • Self-Storage REITs Well-Positioned for a Comeback 2 years ago

    After posting negative total returns for 2016 and 2017 YTD, many industry players have pessimistic views towards to the self-storage REIT sector. According to NAREIT, total returns dipped to -8.14% for 2016 overall, and -4.42% in January 2017. However, storage REITs were the strongest performers last week, up roughly 1.5%. Three of the five publicly-traded REITs in this space were each up over 1%: Cubesmart (NYSE:CUBE), Extra Space (NYSE:EXR), and Public Storage (NYSE:PSA).

    Contrary to its full retreat in 2016, storage REITs were the top-performing sector in the previous two years. Storage REITs had become pricey after delivering record returns for investors in 2014 and 2015, with Extra Space as the top-performing REIT in any asset class over the past decade. Extra Space produced the highest total returns and generated a price appreciation over 800%. However, that bubble popped this past June with storage REIT shares pulling back from -7.6% to -3.5% across the board. Furthermore, the sector is negatively impacted by rising interest rates. According to Seeking Alpha, REIT sectors “which have long-term lease contracts, like single-tenant net-lease and healthcare REITs, are generally viewed as owning portfolios of assets which are more ‘bond-like,’" which can become a headwind in the current environment of rising rates.

    Despite the recent drawbacks, the macro trends for self-storage REITs still direct the sector towards bullish long-term growth. One advantage that self-storage REITs have over most of the other major sectors is “the ability to adjust rents on a monthly basis to take advantage of market supply and demand.” Since customers mainly find storage space online, supply is dominated by large self-storage operators who can afford to rank highly on internet search engines. This makes market-entry more difficult, especially for smaller companies, creating a lack of new supply.

    Self-storage facilities also “open 100% vacant and can take three years or more to stabilize occupancy at 80% or more,” which further discourages the development of new self-storage properties. The shortage has resulted in “record high occupancies in many markets, and savvy operators have been pushing rents higher.” Additionally, self-storage has created heightened demand stemming from the continued drop in US homeownership. Seeking Alpha reports that renters move three times as often compared to people who own their residences, driving demand for storage space up.

    Although the recent numbers for storage REITs are discouraging, the sector’s long-term potential is unchanged when keeping these big-picture, macro trends in mind. The five self-storage REITs have strong supply/demand fundamentals, the technology advantage, and real-time pricing strategies on a market-by-market basis.