Servicers Get Harsher With Retail Loans, Look More Kindly on Hotels

Now that the economic picture is becoming less cloudy and there is a clear path to vaccine distribution, there is more insight to be gleaned from the updated servicer appraisals that started to trickle in last month, according to Moody’s Analytics REIS.

REIS examined the servicer commentaries. Although a mixture of forbearance and foreclosure was mentioned, it found that there was a clear leaning towards forbearance on lodging properties versus a leaning towards foreclosure for retail.

“These comments and data support the economic narrative that while hotels have a better chance of ‘returning to normal’ over the next few years, retail is going through a structural change,” according to REIS.

Servicers, therefore, are being less supportive with retail workouts, and appraisers are harsher with longer-term cash flow projections.

REIS says that the November remittances contained updated appraisals on approximately $1.1 billion from 60 loans secured by retail and lodging properties originated after 2009. Retail and lodging posted average loan-to-value ratios of 62% and 59%, respectively.

Current loan to value ratios with the recent appraisal value were more varied, with an average of 138% for retail and 86% for lodging. Retail experienced an average drop in value of 49% for retail, while lodging saw a 27% decrease.

REIS reported that 30 of the 41 lodging loans had an updated loan to value below 100%, while seven of the 19 retail loans saw their loan to value fall below 100%.

Less Than Transparent Numbers

Further complicating the picture of retail health is the difficulty understanding retail sales during the pandemic.

Kenneth S. Lamy, founder and CEO of Mandeville, La.-based The Lamy Group, told GlobeSt.com in an earlier interview that the increase in buy online, pickup in store (BOPIS) and curbside pickup will complicate matters.

“Until you audit the records, you don’t really know what went into that particular number submitted,” Lamy says. “So, the lack of transparency exists and has existed for years and decades. The BOPIS-driven activity and the online and internet activity has another layer because now you don’t just have everything happening while the customer is in the store.”

Further complicating transparency in 2020 is that landlords or their representatives may not be able to go onsite to audit sales figures because of restrictions around the pandemic.

“In the case of an independent mom and pop retailer, the records are going to be pretty much local to where the property and the store is,” Lamy says. “If it’s a chain, the records would be at the headquarters. Whether it is at a regional, local or even a national chain or an anchor store, we go to all of those [headquarters].”