Retailers

Tariff impact on distressed companies could fuel LME increase

The move comes as bonds Saks sold to finance its $2.7 billion acquisition last year have lost more than a third of their value since they were issued in December.

Top retail-mall owner Taubman has approached the market with a $1 billion CMBS deal to refinance the existing debt that is collateralized by one of the highest volume shopping centers in the U.S.

KBRA estimates that the property has a net operating income of $101.4 million; a 7.25% cap rate, and an in-trust debt service coverage of 1.18x at term Secured Overnight Financing Rate (SOFR).

The delinquency rate on regional mall commercial mortgage-backed securities was 22.9% in February, the highest of any real estate category, according to Moody’s

The sponsor has refrained from multi-borrower deals since March 2020, but has pooled together 28 loan participations from 40 properties – including notable concentrations in retail and lodging.

About $4 billion in value was erased from 118 retail-anchored properties with commercial mortgage-backed securities debt after reappraisals triggered by payment delinquencies, defaults or foreclosures.

Declining month-over-month delinquency levels and the rollout of COVID-19 vaccinations potentially give hope to more normalized economic activity.

The largest U.S. shopping center became delinquent on its debt last year after its owner Triple Five Group began skipping mortgage payments, citing hardships from the COVID-19 pandemic.

Reports indicate distressed owners would rather surrender their hotel or retail properties instead of negotiate workouts on delinquent loans as the pandemic spread carries on.

The more-than-$550 billion market for bonds backed by U.S. commercial mortgages may face losses even after promising Covid-19 vaccines become widespread, as key parts of the real estate market may not return to full strength anytime soon.

Debt delinquencies have soared for mall owners, which lost market share to e-commerce and were hit with tenant bankruptcies even before the pandemic forced shoppers and diners to stay home. By last month, more than 9% of retail commercial mortgage-backed securities were managed by special servicers.

As revenue-starved retailers fall further behind on rent payments, landlords' cash flow will be strained, and defaults on commercial real estate loans could rise.

The race to provide coronavirus relief for small businesses is opening new routes to fund payments, including underused credit lines.

Fitch assumes a significant spike in defaults over the next few months, as well as declining new issuance volume during the second and third quarters of 2020, fewer maturing loans and fewer resolutions by special servicers.

The collapse of dine-in revenues for restaurant chains during the outbreak is placing whole biz deals under the ratings microscope.

The falling rates continue a three-year trend of improving performance across numerous commercial mortgage sectors including multifamily, office and retail.

GameStop's plan to shutter up to 200 stores could adversely affect commercial mortgage-backed securities loans with a combined allocated property balance of almost $42 million, according to Morningstar Credit Ratings.

Mall landlords accustomed to offering rent reductions to ailing retailers are mulling a new strategy to forestall the industry's collapse: positioning themselves as lenders to tenants struggling to stay afloat.

Brick-and-mortar retail isn’t dead yet. Though the trend of retailers closing stores in the face of stiff competition from e-merchants is certainly troubling to commercial real estate lenders, it would be a mistake to conclude that all retail loans are risky. Here's a look at which ones are the safest and, potentially, the scariest.