CMBS Liquidation Volume Jumps

Commercial mortgage-backed securities liquidation volume bounced back after a pandemic-related pause, analysts said.

Moody’s Investors Service, New York, said third quarter CMBS liquidation volume reached its highest level since the coronavirus pandemic emerged in 2020. More than 100 loans were liquidated for a $1.4 billion disposition balance during the quarter, the firm said in its Loss Severities – Q3 2021 Update.

Quarterly loss severity increased to 68.8 percent from 54.3 percent in the second quarter, mainly driven by high losses from three large legacy CMBS 1.0 loans liquidated with high losses during the quarter: the Westfield Centro Portfolio backed by five Westfields malls, the Fair Lakes Office Portfolio in Fairfax, Va., and the Computer Associates headquarters in Islandia, N.Y. Each recorded $100 million-plus losses and a loss severity exceeding 75 percent. These three accounted for 44 percent of the total losses during the quarter, Moody’s reported.

Trepp LLC, New York, said only 219 CMBS loans totaling $3.4 billion were liquidated with losses during full-year 2020, the lowest annual volume in at least a decade. That liquidation volume, less than 40 percent of 2019’s $6 billion, “was the result of servicers expecting the coronavirus pandemic to be a relatively short-term hiccup in markets,” Trepp said in CMBS Loan Disposition Volume Plunges Amid COVID; Losses Climb.

The $3.4 billion of loans liquidated last year suffered a loss of 59.5% percent, Trepp reported.

CMBS 2.0 vintages made up more than a third of the third quarter’s liquidation volume, Moody’s said. The three largest CMBS 2.0 loan losses were all secured by regional mall properties.

“Hotel and retail dominated losses from defaults that occurred after the coronavirus outbreak,” Moody’s said, noting 15 third-quarter liquidations resulted from term defaults that occurred after the outbreak and two liquidations from maturity defaults after March 2020 had negligible loss severities based on balance at liquidation.

Loans with longer resolution periods realized higher loss severities, Moody’s said. Loans resolved within one year of default had a 27.5 percent weighted-average loss severity, while loans taking more than 60 months to be resolved saw a nearly 80 percent weighted-average loss severity. By property type, regional mall and hotel loans reported the longest resolution periods at 18.9 and 18.5 months, respectively.

Moody’s reported troubled malls accounted for an “outsized portion” of retail disposition with five loans backed by malls liquidated during the quarter accounting for 51.2 percent of the total disposition balance and 59 percent of the total losses for liquidated retail loans.