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Massive Number Of CMBS Borrowers Seek Relief

More than 2,600 U.S. commercial real estate borrowers in the CMBS sector sought debt relief during the two weeks ending on March 29, Fitch Ratings reports. The borrowers are holding a combined $49.1B in mortgage loans.


Borrowers asked for payment forbearance but also reallocation of reserves to use for debt service or to make up shortfalls in operating expenses, the ratings agency said. As tenants have quit paying rents or closed altogether, borrowers have begun to suffer.

The $49.1B total includes 42 single-asset, single-borrower CMBS transactions secured by hospitality and retail assets, Fitch said. Those two property types have been hardest hit by the response to the coronavirus outbreak, with hotel occupancies shrinking to unprecedented lows and many retailers shutting for the duration.

For the week of March 24 to March 30, the year-over-year drop in occupancy at U.S. hotels was 67.5 percentage points to 22.6%, with revenue per available room down 80.3% to $18.05, STR reports

As for the retail sector, mall traffic dropped precipitously even before most malls were obliged to close. Some tenants, such as Cheesecake Factory, declined to pay rent in April, despite entreaties from mall owners for them to do so. Thus, during the first week of the measured period, most of the relief requests were for loans associated with hotels (47%) and retail (30%).

As a result of the turmoil in hotels and retail, CMBS markets roiled throughout March. By mid-month, for instance, Anbang Insurance Group's plan to sell 15 U.S. luxury hotels stalled as investor demand for $4B in CMBS that would finance the deal dried up. 

As investor interest in CMBS dropped, the nonagency side of the market in particular has been hit by a liquidity crunch.

"Private-label and agency CMBS represent just under 30% of CRE and multifamily lending, and what we know right now is that the private-label CMBS market is frozen, with CMBS loans sitting on balance sheets, waiting for the market to thaw and new-issue CMBS to come to market," CRE Finance Council Executive Director Lisa Pendergast told Bisnow

In a separate report, Fitch said that the economic impact of the outbreak will also make mortgage refinancing difficult for middle- to lower-quality malls, whether borrowers try to do so via CMBS or other financing sources.

If the recovery is prolonged, that will lead to more retail store closures, Fitch predicts, and thus less stability for landlords. The rating agency expects that the sudden shift to online retail platforms will further put pressure on brick-and-mortar retailers over the longer run.