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National  + Distressed Assets  | 

Regional Malls Bear the Brunt of Declining Appraisal Valuations

U.S. retail property appraisal valuations took a big hit during the pandemic and may not have reached their nadir yet, Fitch Ratings says. Overall, recent property appraisal valuations received for CMBS specially serviced loans across sectors since the start of the coronavirus pandemic have declined 34% from their valuations at issuance. 

Retail properties saw value declines averaging 38.9%, with the largest declines to Class B/C regional malls. “We believe retail valuation declines incorporate a more permanent impairment to property-level cash flows,” according to Fitch. 

Assets already in special servicing before March 2020 saw greater average declines than those that transferred since then, as the pandemic amplified existing performance concerns, says Fitch. The bulk of loans transferred to special servicing since the pandemic began have been primarily hotel and retail assets.

The rating agency’s loss expectations have increased on underperforming regional mall loans and incorporate significantly higher cap rates than used at issuance, as well as additional haircuts to servicer-reported NOI.

Hotel valuations declined by 32.5% and are expected to have reached a trough for properties without pre-pandemic performance concerns. Fitch says it may not rely on the current low appraisal valuations in determining long-term hotel value as the agency expects cash flows to rebound as the sector recovers in 2021’s second half. 

In other sectors, lower valuations are mostly limited to student housing and assets that have already transitioned to REO.


Inside The Story

Fitch Ratings

About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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