3 DC Loans Help Send CMBS Delinquency Rate Back Up

WASHINGTON, DC–There was a fleeting moment in August when it appeared that CMBS' delinquency rate was reversing course from its six-month upward climb. September dispelled that illusion with the Trepp report that the delinquency rate for US commercial real estate loans in CMBS is now 4.78%, an increase of 10 basis points from August.

The rate is now 50 basis points lower than the year-ago level and 39 basis points lower since the beginning of the year.

Trepp outlined the math behind the September reversal: Almost $500 million in loans were cured during the month, but almost $1.3 billion in loans became newly delinquent leading to upward pressure on delinquency rate.

What it also made clear in a separate alert is that of the top five loans that become delinquency in September, three were in the Washington DC area.

Vornado's Skyline Portfolio

Two of the loans, however, were from one portfolio whose troubles are already well known: Vornado's Skyline portfolio.

The $678 million portfolio has landed on Trepp's monthly list of the top five largest CMBS delinquent loans earlier this year–the portfolio is backed by eight offices in Falls Church, VA, with various slices of the debt steadily moving into delinquency.

Last month the $131.2 million B note behind BACM 2007-1 became delinquent. (A Skyline Portfolio A note in the same deal was the second-largest loan to become delinquent in June.) The B note was marked as going through the foreclosure process in August, which means $474.6 million of the total $678 million Skyline Portfolio debt is in foreclosure, according to Trepp.

The other Skyline Portfolio note to turn delinquent was the $98.4 million B note behind GECMC 2007-C1. This B note is also marked as going through the foreclosure process.

Trepp writes:

We've been tracking this loan for over a year as it has fallen on some hard times. The Skyline Portfolio was transferred to special servicing in April due to an imminent default, and occupancy had whittled to 25% when measured at the end of March 2016. According to the most recent Watchlist commentary, the 'submarket continues to struggle as demand has been too weak to backfill BRAC-related vacancies.' The property lost two large tenants within the last two years that combined for over 272,700 of the portfolio's square footage.

Dulles Executive Plaza

A $68.8 million note backing the 379,596 square-foot office complex Dulles Executive Plaza also became delinquent last month.

The note was sent to special servicing in September for an imminent balloon/maturity default, meaning the loan was tagged with a delinquency status of non-performing beyond maturity. Debt service coverage and occupancy for the first quarter of 2016 came in at 1.06x and 89.6%, respectively, according to Trepp.

It writes:

According to watchlist commentary, dominant tenant Lockheed Martin reduced their total footprint by roughly 33,000 square feet. This has caused DSCR and occupancy to drop to the aforementioned levels.