How A Mixed-Use Development in Ohio Made COVID CMBS History

Loan deferrals without P&I advancements have resulted in big interest shortfalls since the onset of the COVID-19 pandemic, according to new analysis from Trepp. 

Typically, deferrals allow borrowers whose loans are not in default to pause their principal and interest payments until they can pay them back, or until the end of a specified deferment period (the length of which varies depending on the loan). Since the pandemic began, most forbearances Trepp experts have seen don’t eliminate the borrower’s obligation to pay—though typically, reserves can be tapped to keep a loan current. 

But in some cases, where borrowers aren’t paying principal or interest, servicers aren’t advancing P&I either. Trepp points to the case of Crocker Park, a large mixed-use complex in West Lake, Ohio, which counts 80 retail tenants (including a Dick’s Sporting Goods) and 18 office tenants as collateral on a $140 million loan. The borrowers were granted a 12-month deferral, and the servicer did not advance—in contravention to typical CMBS practices, where servicers advance P&I for the life of the loan. With Crocker Park, there were no interest payments, no servicer advances, and “in September remittances, the deal this loan was part of repaid hundreds of thousands of dollars of previous advances back to the servicer,” Trepp analysts wrote in a recent piece highlighting the quandary. “This meant that for three CMBS deals, all 2016 vintages, there were big interest shortfalls in September…Because of this deferral, these interest shortfalls may continue for a considerable period, 12 months, because the loan is so large.”

Crocker Park marked the first time Trepp analysts saw a loan deferral approved without servicer advances.

The phenomenon has been highlighted in recent Wall Street Journal coverage of mall owner Pyramid Management Cos., which fell delinquent on two malls in securitized debt and finally negotiated extensions and deferrals. Pyramid resumed payments in November.