Barclays Capital analysts said in a report released yesterday that large region-specific note and REO auctions have become a regular feature in the past year.
Special servicers, they added, are looking to dispose of their distressed, smaller balance loans in areas including Vegas, Florida, Arizona and Texas.
The auctions have contributed to increasing severity levels and have increased liquidation volumes in CMBS conduits, which are now at almost $1.5 billion per month.
According to analysts, the trend has not abated in the new year. They cited Auction.com that has listed property-level details for three large note/REO auctions scheduled in February and March, which all together make up around $1.2 billion in CMBS assets.
According to analysts, most of the liquidations resullting from these auctions should happen in the 2005-2007 vintage deals, with the 2006 vintage alone having $600 million of CMBS exposure.
Among transactions, analysts estimated that GECMC 2006-C1, COMM 2006-C8 and BACM 2006-4 will be most impacted. They added that each of these deals has over $60 million of loans taking part in the auction.
They said that it is obvious that not all properties that are out for bid will transact. Despite this, analysts expect liquidation volumes to stay higher in the coming months due to this factor, particularly in the 2006 vintage.
Inspite of a higher share of multifamily properties, which have performed better in recent times, the distressed nature of the assets and geographies should keep loss severities high.
This can suggest that several of the thinner bottom tranches in these offerings might be written down in the near term. In some cases, they might cause a shift in control rights, usually held by the most subordinate outstanding tranche. This would, in turn, affect any possible transfers in special servicing, Barclays analysts said.
Faster liquidation activity can also negatively impact IO bonds and the associated unscheduled principal payments can actually shorten premium-priced front-pay tranches, analysts stated.
Barclays analysts made a list of the scheduled auctions. One is set for Feb. 6-9, which lists 82 notes and REO properties spread across many states and property types. By matching addresses, property names, balances as well as other loan terms, analysts were able to single out 45 of these as securitized in CMBS trusts, They make up close to $200 million in outstanding balance, with most properties reported in deep delinquency or REO.
Some of the biggest CMBS loans with exposure to the auction include the $90 million Ariel Preferred Retail Portfolio in GSMS 2006-GG8, with two of the six properties comprising around $12.5 million in allocated balance are out for bid, and the $11 million 5000 West Roosevelt loan in HFCMC 2000-PH1, Barclays analysts stated.
Barclays listed another auction as taking place on Feb. 21-23, which comprises 58 properties in Arizona, Colorado and Nevada. Of these, analysts were able to identify 32 with CMBS exposure, reaching $260 million. The biggest are the $19 million Rustic Hills Shopping Center in GCCFC 2005-GG5 and the $18.5 million Meridian Bank Tower in WBCMT 2005-C21, they reported.
The third auction is the biggest of the three and is scheduled for March 5-8. In this multi-family only auction, analysts projected that $720 million in CMBS exposure, led by the $63 million Empirian Chesapeake in COMM 2006-C8 and the $45.6 million LeCraw Portfolio in LBUBS 2006-C6.
Additionally, Auction.com listed six additional commercial real estate auctions that were set through March and April, making up an estimated $2 billion worth of assets, analysts noted. The property-level details on these properties have not yet been released.
With previous auctions, assets out for bid are tilted toward worse performing geographies, with Nevada, Tennessee, Georgia, Arizona and Texas comprising half of the CMBS loans in the auctions.
Among property types, analysts projected that apartment buildings make up 69% of CMBS assets mostly from the over $700 million multifamily only auction in March.
However, unlike previous auctions, most, close to 80%, of CMBS properties listed are in REO. Meanwhile, the rest are mostly note sales on nonperforming loans. LNR Property is still the dominant special servicer, making up 80% of the collateral.