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Single-Tenant CMBS Exposure is On the Rise

Loans secured by single-tenant properties in Kroll Bond Rating Agency’s (KBRA) rated conduits, as a percentage of a transaction’s securitization balance, continued trending upward through the first half of 2021. For the first time in the nine years since KBRA began tracking this exposure, it passed the 20% threshold in 2020. Year to date, it stands at 21.9%..

Single-tenant properties generally present higher credit risk than multi-tenant properties since the sole source of income is generated by one lessee rather than a diversified roster of tenants, says KBRA. That risk is amplified when lease expirations occur before the loan maturity date.

Of the single-tenant exposure in KBRA-rated conduits, office single tenants constituted more than one-half of the 2020 and 2021 YTD activity (51.4%). 

This exposure was about 1.7x higher than the next-largest property type, industrial (30.4%), with retail coming in third at (15.8%). Collectively, these three property types accounted for 97.6% of the total single-tenant exposure in 2020 and 2021 YTD. 

Single-tenant loans typically consist of long-term leases, some of which are to High Quality Credit Worthy Tenants (HQCWTs). Long-term leases to HQCWTs can prove to be a reliable source of income through the loan term, and they present lower default risk relative to other single-tenant loans. 

Furthermore, says KBRA, “some locations may be essential to the tenant’s operations and/or serve as a company headquarters location, increasing the likelihood of renewal.” 

For 2020 and YTD 2021, five of the top six single tenants are HQCWTs. Three of the HQCWTs came from the technology industry and included Facebook ($409.4 million, 6.7% of total single-tenant loans), Amazon ($380.8 million, 6.2%), and Google ($377.2 million, 5.5%). The other HQCWT tenants within the top 10 are Walgreens ($219.7 million, 3.6%) and Leidos Biomedical Research ($99.1 million, 1.6%). 

While the presence of these tenants may mitigate some of the risk associated with single-tenant assets, KBRA notes that not all leases are to HQCWTs. The single-tenant lessee is typically responsible for repairs, real estate taxes, and other expenses. 

This can present a high default risk profile compared to multi-tenanted assets with a diversified roster of tenants from multiple industries. “Single-tenant properties may also have been built-to-suit to meet specific tenant requirements, making it more difficult to re-lease when tenants vacate,” says the rating agency. 

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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 GlobeSt.com 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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