| At first glance, you might think that the chart represents market stagnation in DFW because the amount of special servicing loans and loan volume have been steady for 12 months. However, Munsch Hardt shareholder David Coligado tells us that steady figure reflects that special servicers have been getting loans out of special servicing (either by modifying and getting them in good status,foreclosing, and/or moving the assets, or getting loan payoffs). Holt Lunsford Commercial Office Group's Kevin Brands says the amount of loans in special servicing has continued to stabilize, declining slightly from Q2. The trend has yet to show any evidence of the expected wave of distressed commercial properties. Significant CMBS maturation still looms over the next couple of years and, barring improved fundamentals in the economy, will support greater numbers of loans in special servicing moving forward. | |
| More broadly, Kevin concludes, Dallas (above, a pic we took outside the DART offices downtown last week) is in a better position than many areas of the country with regard to the volume and severity of distressed loans. To move out of this cycle, losses need to be realized; i.e., foreclosures or asset transfers need to occur, David says. There is definitely a market for “good” distressed assets in DFW and those transactions are starting to pick up. For example, there seems to be no lack of potential buyers for "good" distressed multifamily projects. | |
| David, above, says the average size of the loans in special servicing is approximately $12.5M. However, factor in the big loans like the Four Seasons, the Younan office portfolio, Preston Commons, and Solana, and the majority of the loans in special servicing are smaller assets (sub $5M loans), which seem to have a lot of hair such as little to no occupancy and high deferred-maintenance expenses. The market for those small assets is limited and the special servicer workforce will be tied up dealing with the high volume of these small loans for a while, he adds. As long as special servicers continue to modify loans and place them back with the master servicers, there will be a delay in the realization of the true value of assets in the marketplace, David says, although there's a growing sentiment that the days of “extend and pretend” are coming to a close, and this shift in philosophy should help us begin to realize true market value. |
DFW CMBS STEADY
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Kevin Brands, Preston Commons
