Appraisal Values For Distressed Assets Continue to Drop

Appraisals for distressed CRE assets are continuing their COVID-induced decline, with valuations for specially serviced assets slumping 33% in the period spanning October 2020 through March 2021, according to a new report from KBRA.

Over the last 12 months, the 1,078 updated appraisal values reported by KBRA were 30.2% lower than the values appraised at securitization conducted 4.7 years ago on average. Properties securitized in 2011 showed the largest decline at 49.5%, which may reflect the amount of malls securitized then. And of the updated appraisals, 2% showed declines of more than 80% while 10.4% showed valuation increases.

Retail suffered the most, with the largest average valuation decline of 36.9%.  This was led largely by 53 malls that experienced, on average, a decline of 62.3%; of those, 10 malls posted declines of 80% or more. The biggest loser was Oakdale Mall in Johnson City, New York, which posted the largest property valuation decline at 93%. (On the other end of the spectrum, Whalers Village in Lahaina, Hawaii had the biggest valuation increase, at 75.5%.)

The office sector also had several properties with more than 80% valuation declines; all three were in suburban markets in Texas. Two assets consisted of REO properties, one in Houston and one in Irving. On a regional basis, Texas had the largest average property decline at 34.9%.

The CMBS 2.0 specially serviced rate, which peaked at 9.6% in September 2020, has continued to improve and hit 8.31% in April. Lodging showed a 233 basis point reduction last month, and retail registered a 37 basis point decrease, while the percentage of loans with the special servicer for other property types was relatively unchanged month-over-month.