$21B of CMBS Loans in Special Servicing Because of Coronavirus

The coronavirus pandemic has been bad news for commercial mortgage-backed securities as $21 billion of CMBS loans has been transferred to special servicing since mid-March, or more than double the value for all of last year.

Special services took in 439 CMBS loans during March, April and May, according to  a report by credit rating agency Fitch Ratings. That’s fewer than the 674 CMBS loans that went to special servicing last year but with a much higher value than last year’s $9 billion.

Transfers to special services were highest in April and then went down in May to levels less than those in March.

Most of the $21 billion hasn’t yet been reported as being caused by the economic shutdown imposed to stop the spread of COVID-19, but Fitch in its report attributed the transfers to the pandemic’s impact borrowers and their real estate tenants.

So far only 8% of the number of loans transferred during the three-month time span were reported as impacted by the coronavirus. This number could go up as the four biggest master servicers will be updating information on the transfers.

Commercial real estate industry group CRE Finance Council issued on May 22 version 8.1 of the Investor Reporting Package that includes guidance for servicers how to identify loans affected by the coronavirus. Many transfers already had occurred by the time the guidance was issued, prompting the big master servicers to reevaluate the loan transfers.

Notably, most of the recent loan transfers were either current or within their grace period by May with 29 loans totaling $242.5 million past their two-month delinquent period.

Making things even less quantifiable is that the data doesn’t include loans that special servicers are looking at as performing loan consents and loans being processes for some form of debt relief. They aren’t listed in transfer reports but comprise a big chunk of special servicing workouts.

Hotels are the real estate type representing the most transfers to special servicing followed by retail. They are the asset classes most impacted by the business closures imposed because of the pandemic, although many have cautiously started reopening imposing capacity limits.

The expectation is that loan transfers in the near future will be driven by office and retail properties, Fitch said in its report.

In total in 2020, 473 loans were transferred to special servicing, including loans transferred in January and February before the onset of the pandemic. Out of those, the majority are single asset/single borrower, of SASB, transfers at 59%.

Fitch expects forthcoming transfers will be driven by conduit loans.

The Fitch data was compiled from Fitch-rated special servicers, Trepp data as of May 26 on month-over-month special servicing loan transfers. The data includes CMBS conduit, large loans and SASB loans but excludes agency loans, single family rental and small balance loans from its analysis.