Mid-Atlantic retail loans face default risk – Trade Observer
“CRED iQ has curated a regional catalog of commercial real estate loans with maturities over the next three years,” wrote Marc McDevitt, Senior Managing Director of CRED iQ.
“The Retail Refi Recon namesake focuses on loans secured by commercial properties located in the Mid-Atlantic region of the United States, which includes New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West Virginia and Washington, DC. loans that have been transferred to a special service before the 2022 maturity dates as well as real estate assets (REO) destined for liquidation.
“Focusing on loans to refinance over the next three years, regardless of property type, may be a prudent strategy for distressed commercial real estate investors or those looking to provide cash injections to facilitate recapitalizations.
“The retail sector, in particular, has faced many headwinds related to both the adverse effects of the pandemic as well as secular changes stemming from consumer preferences and the evolution of e-commerce. Even retail subtypes historically perceived to have relatively low credit risk, such as single-tenant net leasehold properties, have faced faster repositioning as traditional tenants such as Walgreens, CVS and retail banking branches have reduced their physical footprint.
“Retail loans at maturity default risk include those with a low debt service coverage ratio, low yield on debt, or other underlying credit issues at the collateral property level. . Current occupancy and stable rental listings are also important factors for a smooth refinancing process, as prime tenants whose leases expire in the short term are usually red flags for lenders.
“Analyzing the CMBS landscape, there are 15 REO commercial properties in the Mid-Atlantic with approximately $171 million in outstanding debt. The largest REO commercial property in the Mid-Atlantic based on outstanding of Debt is a 360,249 square foot portion of Charlottesville Fashion Square in Charlottesville, Va. This portion of the regional mall was reportedly sold to Home Depot in September 2022 in a transaction that was facilitated by JLL and the property was still under contract at the time of this writing.
“REO properties aren’t the only distressed retail opportunities available. CRED iQ also identified 12 properties securing specially managed loans totaling $439 million that had maturity dates in 2022. seizure and subsequent liquidations.
“Over a three-year horizon, approximately 95 CMBS loans totaling $2.5 billion are expected to mature in 2023. Of these, approximately nine loans totaling $547 million, or 22%, are on special duty.
“One of the largest special service loans is a $248 million mortgage secured by Crossgates Mall in Albany, NY, which is due to mature in May 2023. The loan was issued with a maturity date in May 2022, but the borrower has negotiated a maturity in May 2022. -one year extension in 2020. An option at maturity is another extension.
“Mortgage loan sponsor Crossgates Mall also separately negotiated a five-year extension in June 2022 for $430 million in debt secured by the sprawling retail complex known as Destiny USA in Syracuse, NY.
“There are more than 175 retail loans in the Mid-Atlantic, totaling approximately $3.8 billion, scheduled to mature in 2024. This includes $525 million of debt guaranteed by Garden State Plaza at Paramus, NJ.
“The 2025 maturity bucket includes more than 275 loans totaling $3.4 billion. Mid-Atlantic’s largest retail loan with a maturity date of 2025 is a $600 million mortgage secured by the Queens Center shopping complex in Elmhurst, NY
“In total, more than 500 Mid-Atlantic commercial properties are securing CMBS loans with a total outstanding balance of approximately $9.7 billion that are expected to mature from 2023 to 2025. We expect difficulties in timely refinancing for a number of these retail loans over the next three years given the inflationary pressures on cash flow, rising interest rates relative to origination and credit issues specific to real estate that may be present.