Special services remain busy as 2020 draws to a close – Business Observer
The distress in hotel loans and other asset classes, such as retail, which have been negatively impacted by the pandemic, may have reached a fever pitch and it will not get much worse, analysts say . Still, the problems in commercial real estate loans remain much more widespread than expected before hearing about the coronavirus.
Almost half, or 47.5%, of commercial mortgage-backed securities (CMBS) loans to New York-area hotels were on special duty last month, according to research firm Trepp. In other words, these loans have been turned over to special service divisions of loan managers, who focus on loan arrangements and resolutions in times of distress. The transfer can be the precursor of a defect. The number of loans on special duty has increased every month since February, when it was only 5.48%.
“We don’t think the number will get significantly worse,” wrote Manus Clancy, senior managing director and head of applied data, research and pricing services at Trepp, in an email. “We think that now [that] there is optimism about the vaccine, owners who have held so far will continue to hold. There is light at the end of the tunnel. “
For loans securitized on commercial properties in the New York Metropolitan Statistical Area, the loan officer “watch list” share was 18.3%. Lockdowns and other restrictions related to COVID-19 have had the greatest impact on personal and hotel lending by depriving their underlying assets of their customer base.
And while office owners have only seen a percentage of their tenants’ workforce return, having learned that they can be just as efficient working from home, Clancy doesn’t see this affecting quality. credit of CMBS loans on office buildings. The percentage of securitized office loans that were on the watchlist in the New York area was 9.4, down from September, when it was 10.87%.
Office owners are mostly immune to office usage trends, as most occupied space is on long-term leases of 10 years or more. So far, only a tiny fraction of CMBS office loans are in trouble.
“An office loan can be put on the watch list for reasons as benign as an expired fire extinguisher tag or a crack in the sidewalk outside the building,” Clancy said. “So there is a reference number which is always a bit high. “
Clancy said there were a few caveats. If office building owners have an abundance of short-term lease expirations or have “tenants of worrying credit quality,” such as retailer offices, “the problems get more difficult,” a- he declared.
“There are concerns that law firms, accounting firms and banks are looking to reduce the office footprint significantly,” Clancy added. “So if these leases are coming soon, lenders (and) investors are worried. For these owners, there is financing available on the CMBS market or the CLO [collateralized loan obligations] market, but it will take lower leverage and higher rates to account for the uncertainty.
Many lenders have avoided the worst impacts of their borrowers’ shortage of income by granting forbearance. One way has been to suspend payments for now and postpone them until the end of a mortgage. Clancy said anyone who has received one forbearance should likely get another now that a vaccine is on the horizon.
Alex Killick, senior vice president of CWCapital, one of the largest special services companies, said he saw continued distress, albeit “at a slower pace than at the start of the year.”
“Those who have already defaulted are not necessarily resolved, so the total number will continue to increase,” he said. “But I don’t think that’s going to be the parabolic curve it was.”
A loan finance specialist, who asked not to be named, called the city’s hotel segment a “disaster,” with every hotel in some level of distress, with almost no tourist or convention activity. Most operate at 20-30 percent capacity, and that’s an improvement over spring and summer.
Killick said he sees a “pent-up demand for fun,” so vacation activity in 2021 is expected to be better than in 2020, especially in the second half of the year. But he said it will take more time to revive convention activity.
“I don’t see any conference on the horizon for the summer of 21,” he said.