Morningstar Credit Ratings has identified $1.44 billion worth of loans that could impact CMBS deals following Ralph Lauren’s recent announcement of 50 upcoming store closures.
A ‘CMBS Alert’ from the ratings agency identified 30 securitized loans with exposure but stated that they do not pose a “major risk” to CMBS.
Six loans (see chart) have occupancy that would drop to 80 percent or below if Ralph Lauren or an affiliate were to vacate, though the “relatively healthy status” of the six highlighted loans offsets the risks.
In addition, though six of the 30 loans are set to mature by the end of 2017, the remaining 24 will not mature until after 2020, “which would theoretically provide enough time to re-lease, should Ralph Lauren vacate in the upcoming years.”
One deal impacted thus far is MSBAM 2015-C21. Ralph Lauren was the largest tenant included in that deal’s Mammoth Luxury Outlets loan, dropping occupancy to 57.2 percent from 74 percent when it closed in May.
The loan had already been at an elevated risk, with a DSCR of 1.16x as of March 31, 2016. However, Morningstar noted, the departure was already taken into account when the loan was unwritten, “and it was structured with tenant improvements and leasing commissions to cover the costs of releasing the space.”
Ralph Lauren operates 493 stores, which include Ralph Lauren, Club Monaco, and Polo factory stores. The greatest exposure lies in 17 “factory stores” in outlet malls, accounting for 74.4 percent of the company’s leasable space tied to CMBS.
The company announced the closings and a company restructuring in June.