Delinquency and special servicing rates for retail CMBS loans in Manhattan are at an all-time high, according to a new report from Trepp x Compstak. Delinquency rates hit 16.68% in August, and special servicing rates increased to 17.55%.
Before the pandemic, retail delinquency and special servicing rates were low, at 2.38% and 8.41% in February, respectively, and previous historical peak levels were 3.71% and 4.39%, respectively.
The distress of the market segment illustrates the impact of forced retail closures and limited federal support this year. Notably, occupancy levels have not significantly decreased during the pandemic. Manhattan retail loan occupancy rates decreased from 98.7% in February to 94.9% in November. Overall, retail occupancy declined nominally from 93.9% to 93.2% over the same time period.
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Currently, retail properties account for nearly $5 billion in outstanding CMBS debt, a total of 130 loans. This is roughly 3.8% of the CMBS retail market and 40% of the CMBS retail market in New York State. Trepp has flagged $570.9 million in Manhattan retail loans for having requested COVID-related financial relief thus far. Some significant loans are among the distressed, including a $70 million loan fully backed by The Gap store at 170 Broadway, and the $205 million loan backed by Kushner's 229 West 43rd.
Since August, some retail loans have recovered. Delinquency rates decreased to 14.62% with many loans returning to current status, although the special servicing rate was nearly unchanged at 17.02%. Forbearance policies helped support the recovery, as did policies that allowed borrowers to tap into reserves to meet debt requirements.
The holiday season will prove to be critical for retailers, according to the Trepp X Compstak report. The holiday shopping season is typically a significant aspect of annual revenues for retailers, but rising COVID cases have pushed Manhattan close to another lockdown. Already, some restaurants have been hit with increased restrictions, and New York State Governor Andrew Cuomo says the state is nearing a full shutdown, an event that will no doubt impact retail shopping and spending.
According to Trepp, the winners will undoubtedly be those retailers that have an omnichannel presence that allow for agility in quickly adapting to consumer needs and new regulation.
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Kelsi Maree Borland
