Lenders Are Working Through Troubled Retail Loans

A few short months ago, it appeared that lenders were less inclined to work out struggling loans for retail properties compared with equally troubled hotel loans. 

This became clear late last year when REIS examined servicer commentaries and found that there was a clear leaning towards forbearance on lodging properties versus a leaning towards foreclosure for retail. The theory was that lenders viewed hotel properties’ business case as solid—they had just been blindsided by the pandemic—while the retail model needed a rethink.

But now retail loan resolutions are strong, which points to increased lender confidence in the asset class.

In March, Fitch Ratings’ US CMBS delinquency rate dropped 23 bps to 4.10%. Fitch says that both resolution activity and new issuance volume remain strong. The pace of new delinquencies has also slowed considerably.

In March, resolutions totaled $1.6 billion after coming in at $2.1 billion in February. Eight regional mall loans totaling $951 million constituted the bulk of the resolutions. They were no longer reported as 60-plus days delinquent. Two of these loans were modified, while five were resolved through the reapplication of funds for debt service, according to Fitch. The borrower funded shortfalls for one loan.

Major malls resolutions in February included White Marsh Mall in Baltimore, Md. ($190 million), Quaker Bridge Mall in Lawrenceville, NJ ($150 million), Crossroads Center in Saint Cloud, Minn. ($89 million), Queen Ka’ahumanu Center in Kahului, Hawaii ($87 million), Outlets of Mississippi in Pearl, Miss. ($62 million); Greenwood Mall in Bowling Green, Ken. ($59 million), Valley Hills Mall in Hickory, NC ($59 million).

The $256 million Gurnee Mills loan was the largest overall resolution last month. It was secured by a 1.7 million-square-foot portion of a regional mall in Gurnee, IL. The loan transferred to special servicing in June 2020 for pandemic-related performance concerns. In March, it was reported as current after the sponsor, Simon Property Group, was granted forbearance. The loan was converted to interest-only for the remainder of the term, and principal and interest payments were deferred from June 2020 through February 2021. The deferred amount is to be repaid by March 2023.

Delinquencies also fell, dropping from $1.1 billion in February to $697 million in March, which is the lowest since the start of the pandemic. The peak was $10.8 billion in June 2020.

From February to March, the rate of 30-day delinquencies rolling to 60 days was 21%. From January to February, that rate hit 33%. And from December to January it was 29%. Total 30-day delinquencies rose from $2.4 billion in February to $3.0 billion in March.

Fifty-nine percent of March’s new delinquencies were previously granted relief, according to Fitch. Since the start of the pandemic, $24.1 billion (778 loans; 4.8% of the Fitch-rated U.S. CMBS universe) have received debt relief. In February, $23.9 billion (763 loans) had received relief.

Special servicing volume was $28.9 billion (1,210 loans) in March, which was 5.8% of the Fitch-rated U.S. CMBS universe. In February, servicing volume was $29.4 billion (1,226 loans). In February, 71% of the special servicing volume ($20.9 billion) was at least days delinquent. That percentage fell to 69% ($20.0 billion) in March.