One Measure Shows How Sharply Some Property Values Have Depreciated
Retail and lodging have been hit especially hard.
Property values are falling across regions and property sectors, based on CMBS servicer loan data, according to Trepp.
For its analysis, Trepp looked at loans issued after the Global Financial Crisis that had new appraisals completed since March 2020 and where values were different than at securitization.
On average, values fell 36% for lodging properties, according to Trepp. It says the collateral properties for 335 loans totaling $8 billion had been re-appraised. The hotel loans have a cumulative appraisal reduction amount (ARA) of $673.1 million, which would imply a loss of about 8.4%. More than half, 52.2%, of all CMBS hotel loans have seen large drops in debt-service coverage ratios.
Retail loans suffered even more. Trepp found that values dropped 41.5% for the collateral behind 159 retail loans. Those loans had a balance of $6.7 billion. The retail loans carry $1.1 billion of ARAs so far, which would imply a loss of 16.1%. The percentage of retail loans seeing large drops in debt-service coverage ratios is 7.15%.
Trepp points to the loan behind Palisades Center, a 2.3-million-square-foot shopping mall in West Nyack, N.Y., as one that has run into trouble. The Palisades Center backs a total of $560 million of debt, including $418.5 million of senior securitized debt. In August, the property was appraised at a value of $425 million, which was a 42% fall from its $881 million value in 2016 when the financing was written. Another New York mall, the 1.7 million-square-foot Crossgates in Albany, N.Y., saw its value drop by 40% to $281 million. Yet another New York mall, the Walden Galleria in Cheektowaga, N.Y., saw its value slashed 64% to $216 million.
Problem loans weren’t just found in New York malls. The 1,639-room Palmer House Hilton in Chicago saw its value fall from $560 million in 2018 to $305.5 million in an August appraisal.
While malls and lodging have been the hardest hit by the COVID-19 pandemic, other sectors were also feeling stress. Trepp noted that the usually stable multifamily sector was facing pressure as rent collection struggles continued.