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Finally Some Good News for Retail
The post-holiday season period reflected a continued shake-up underway in the retail sector. That included a number of notable department store retailers indicating large-scale store closures were planned in the first half of 2018, as well as more retailers joining the ranks of those filing for bankruptcy.
The outlook for the retail sector is largely positive, primarily because the economy is showing strength and consumer confidence is high. Still, traditional retailers with large physical footprints will be under pressure to trim store counts and find ways to incorporate e-commerce into their sales channels.
Part of that process for the retail sector is working through the loans that had come due, were in distress or paid off. Trepp looked at the retail CMBS segment over the past few months, and found a large volume of underperforming retail loans were cleared even as the so-called Wall of Maturities ended. That resulted in overall special servicing and delinquency percentages tapering down slightly from peak levels in late 2017, reports Trepp. Still, overall retail distress rates are trending above the national average for all property categories.
Trepp’s Catherine Liu notes, between February 2017 and January 2018, roughly $23.5 billion in securitized mortgages backed by retail collateral were paid off or liquidated, 13.25% of which incurred losses at resolution. They were written off at an average loss severity of 56.63%, resulting in a 7.50% loss on the total balance of all retail loans that paid off.
The overall CMBS loss severity for loans disposed during this time frame translated to 42.69%. Based on underwritten maturity dates for loans that were scheduled to pay off during this time frame, $6.14 billion across 350 retail loans are still outstanding, reports Trepp. Total liquidation volume for January retail maturities dipped to $497.9 million, while average loss severity for loans resolved with a loss rose to 67.33%.
In the month of January, Trepp notes, 17 loans with a combined balance of $481.8 million were categorized as newly in default, generating a monthly default rate of 0.26%. That is a decline of 10 basis points from October’s rate of 0.36%.
Eight loans totaling $155.2 million were transferred to special servicing in January, generating a monthly special servicing transfer rate of 0.12%. By Trepp’s count, only 28 retail loans were sent to special servicing between November and January 2018, making it the lowest three-month tally reported by Trepp over the last two years.
For comments, questions or concerns, please contact Dennis Kaiser
- ◦Economy
- ◦Financing
