Industry research expands projected retail CMBS losses

Ratings agencies and industry research firms continue to flag the impacts that a mounting wave of retail store closings could have on retail CMBS deals in the US.

Ratings agencies and industry research firms continue to flag the impacts that a mounting wave of retail store closings could have on retail CMBS deals in the US.

Morningstar today increased its loss forecast for the Hudson Valley Mall CMBS loan, which is slated to become the largest loss since 2010, and the ratings agency noted elevated default risk on $730 million of debt tied to the Sports Authority closings. Trepp meanwhile flagged the potential impacts of the upcoming closings of two Office Depot locations.

Sports Authority plans to close 140 stores, which are tied to 82 loans with an allocated property balance of $3.72 billion — even higher than previous forecasts of $3.13 billion.

sports-authority-office“Morningstar sees elevated default risk among 42 CMBS loans with an allocated property balance of $729.5 million,” the ratings agency wrote in a report. “While the company may be counting on buyers to take over many of its stores, Morningstar sees the potential for a material net cash flow decline at 42 properties after the sporting-goods retailer vacates.”

The largest loan of concern is the $63.0 million Pacific Coast Plaza loan, which is 4.5 percent of JPMCC 2007-LD12. Sports Authority is the third-largest tenant at the Oceanside, California, shopping center, accounting for 13.3 percent of the space.

“The loss of Sports Authority less than 15 months before the loan’s July 2017 maturity could push the debt service coverage ratio below break-even, which could land the loan in default depending on the borrower’s desire to fund the shortfall,” the firm wrote.

Morningstar also increased its loss forecast of $24.7 million on the $49.4 million Hudson Valley Mall in Kingston, New York, which makes up 17.7 percent of CFCRE 2011-C1, to $32.5 million. It is the largest deal in the securitization.

“While the loss would be just the third material loss in a deal issued since the restart of the CMBS market in 2010, it would be by far the largest,” according to a separate Morningstar report.

Sagging occupancy prompted the loan’s transfer to special servicing, including the loss of a second anchor tenant within the past 12 months: JCPenney in April 2015 and Macy’s earlier this year. Five years ago, the mall had an occupancy rate of 95 percent but it now stands in the upper-60 percent range and “could continue to slide, as an additional 24 percent of the tenants have less than 12 months left on their leases or are operating with kick-out clauses” that allow them to vacate if sales don’t improve within 12 months.

Citing published reports, Trepp meanwhile flagged two Office Depot stores in the Colorado Springs area that will close on May 14.

The retailer is the third largest tenant at the Broadmoor Towne Center at 1922 Southgate Road, which backs a $14.5 million loan that makes up 1.19 percent of COMM 2014-LC17, For the first three quarters of 2015, however, DSCR and occupancy were 1.40x and 100 percent, respectively.

Earlier this month Morningstar and Trepp also highlighted the impacts of Sport Chalet’s plans to close 47 stores. Morningstar noted that $628.9 million in CMBS across 11 deals could be affected.

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