Asset Performance 'Hard to Generalize'

“It has become hard to generalize,” Christopher LaBianca of UBS Real Estate Investments said about asset performance and capital availability in a digital conversation last week hosted by George Smith Partners. The conversation—called Non-Recourse CMBS Loans in the Time of COVID—included Mark Fluent of Deutsche Bank Corporate Bank, Tammy Goldfisher of The Henley Group and Matthew Lefkowitz of Crown Properties International. The panelists agreed that hotel and retail properties were suffering more than office and multifamily, but added that there are other determining factors.

Lefkowitz gave portfolio overview, although he could not comment on hotel or industrial asset performance. “We have seen some issues with high street retail in Manhattan, where there has just been zero rent payment,” he said. “Those stores are unable to open and mandated to stay closed. The same goes for gyms and restaurants. Grocery-anchored shopping centers have done better. We have seen collections there in the 75% range.”

Office and multifamily assets, on the other hand, have had much stronger rent collections during the pandemic. “Across the office portfolio, both in core and suburban, we have seen collections right around 90%. Off a little bit, but not terrible. On the multifamily side, things have been a bit better for April and May,” adds Lefkowitz. “We have seen rent collections of 97%. We have a few people that need help, and we are working with people to figure out payment plans and trying to be as compassionate as possible while moving forward with business.”

In terms of available debt, LaBianca agreed that retail and hotel product is the most challenged. “There has been a reduction of credit, but that is not equally distributed across the board,” he said. “There is certainly plenty of credit available for multifamily from the agencies, but if you are trying to get hotel loans, most sources are not quoting or are quoting selectively. The same for retail. So, it has been uneven. It has also been uneven from a geographic perspective and a size perspective. The smaller deals get a lot of attention, and the larger deals are really hard, particularly from a CMBS standpoint.”

Fluent added that recovery for hotel assets will be challenging. “It is probably going to be a while before the liquidity comes back to hotel lending side,” he said. “Retail could rebound faster, assuming that most of their tenants come back. For hotels to ramp back up will take time.”

The CMBS market has yet to see hotel assets slip into special servicing. “With the COVID influence, there are a lot of hotel owners that are up-to-date, but obviously, their occupancy is way down,” said Goldfisher. “They are trying to stay at the master servicer level, but that lasts for 90 days. Then, you have to have a conversation about where to go from there, and they are going to deal with possibly going into special servicing.”

However, 7% of CMBS loans across asset classes have already gone into special servicing. Typically only 1% to 2% of CMBS loans are in special servicing, and during the 2008 recession, the peak was 8%. “The velocity at which this has happened is the greatest difference from the prior cycle,” said Goldfisher.