Wednesday, April 18, 2012

Digging Deeper

Here is short article worth reading from the Wall Street Journal.  The article discusses a $49 million loan that JP Morgan pulled from a $1 billion commercial mortgage backed security (CMBS) it was set to issue.  The loan was a refinance of two shopping centers in Boca Raton, Florida, with a total of 183,000 square feet.  The properties' combined occupancy was 97% and they were appraised at $72 million in January.   The $49 million loan was replacing a $44.2 million loan that was in default.  The following passage is why I think the loan was removed:
Glades Plaza and The Commons at Town Center, actually two properties on different sides of NW 19th Street in Boca Raton, were developed in 1979 and appraised at $72 million in January, according to a description of the property in the initial J.P. Morgan loan documents. Its occupancy has increased to 97% from 54% in 2009 and its tenants include Hooters, a Brewzzi microbrewery and Barbara Katz Sportswear, the description states.

The complex's largest tenant, with about 11,400 square is its landlord, Woolbright, according to the company's website and loan documents.
The properties are over thirty years old, and despite the combined 183,000 square feet, it does not look like there was a major anchor tenant.  The properties' owner, which is a developer not a retailer, leasing over 6% of the space and being the largest tenant was probably not viewed as a positive. 


Anonymous said...

Can you explain this? I don't understand this at all and I think you could let me know if I'm missing something. Article is from CoStar:
"Frothy: CMBS Deals Return to the Days of Loans Exceeding 100% of Value
Five New CMBS Deals Hit the Market this Month
By Mark Heschmeyer
April 25, 2012
Moody's Investors Service raised a red flag in its quarterly review of the U.S. CMBS market, saying the leverage on loans backing upcoming CMBS conduit transactions is poised to increase. Several conduits in its second quarter 2012 CMBS deal pipeline have collateral pools with average leverage approaching or exceeding 100% Moody's loan-to-value ratio (MLTV)."

Rational Realist said...

Moody's is saying the upcoming CMBS deals include mortgage pools that exceed Moody's estimate of underlying collateral value. I suspect the underwriting bank's collateral value is higher than Moody's. Value is a tricky estimate and varies depending on inputs. Look at the debt service coverages - which are all greater the debt payments. Multifamily has historically had high loan to value ratios. Underwriters would have a hard time selling these deals of the loans were worth more than the collateral.