The volume of CMBS loans in special servicing as of the end of last month increased by $3.4 billion to $75 billion. That means 10.7 percent of the entire CMBS universe tracked by Realpoint is now in the hands of the industry’s 28 special servicers, which are handling 4,292 loans. The volume of loan transfers to special servicers has been increasing steadily since October 2008, when only $8.3 billion were in their hands. For each of the past six months, at least $3 billion has transferred. If that pace keeps up, and few expect it not to, roughly 20 percent of all CMBS loans, by balance, will be in special servicing by the end of next year.
Earlier, Fitch Ratings predicted that 20 percent, by number, of all CMBS loans will be in special servicing by 2012. That’s based on the expectation that many loans will also move out of special servicing.
Any way you shake it, special servicers are facing mounting workloads and each has been actively adding asset managers and other workout specialists. Based on Fitch’s prediction, they’ll have to more than double their workforces in the coming years. LNR Partners remains the most active special servicer, handling 1,160 loans with a balance of $19.6 billion,
CWCapital Asset Management is overseeing 905 loans with a balance of $18.4 billion and Midland Loan Services is handling 517 loans with a balance of $8.5 billion. The three oversee 62 percent of all loans in special servicing. The list of loans that transferred to special servicing is heavily weighted with loans that might still be performing, but have either matured or are close to maturing. And many of those are backed by properties that, even in a more liquid market, would have a tough time qualifying for a full refinancing.
The biggest such example is a $284.5 million loan on a portfolio of full-service hotels that were owned by MeriStar Hospitality Corp., a REIT acquired by Blackstone Group in 2006. The loan, securitized through Bear Stearns Commercial Mortgage Securities Inc., 2007-BBA8, is set to mature in May. Its two one-year extension options have already been exercised.
While the loan has not defaulted - it continues to make its $508,916 monthly interest payment - it’s not likely to get refinanced, given the sharp decline in cash flow in the hotel sector. Another big-ticket transfer was the $186.6 million mortgage on the Southdale Mall, a 1.3 million-square-foot shopping center in Edina, Minn., owned by a venture of Simon Property Group and Farallon Capital Management. A $150 million piece of the loan was securitized via Banc of America Commercial Mortgage Inc., 2005-1.
The debt matures next month, but the collateral was only 57 percent occupied as of last September, when it was on track to generate $14.3 million of net cash flow. That gives its loan a debt yield of only 7.7 percent - way too low to get fully refinanced in today’s market. But the loan continues to pay simply because it requires only interest payments. With Libor so low, its annual debt-service requirement is only $9 million.