New York retail CMBS loan delinquencies hit record high

The delinquency and special service rates for retail CMBS loans in Manhattan are at an all time high, according to a new report from Trepp x Compstak. Default rates reached 16.68% in August and special service rates increased to 17.55%.

Prior to the pandemic, retail and special service delinquency rates were low, at 2.38% and 8.41% in February, respectively, and previous all-time highs were 3.71% and 4.39%, respectively.

The distress in the market segment illustrates the impact of forced retail closings and limited federal support this year. Notably, occupancy levels did not decrease significantly during the pandemic. Personal loan occupancy rates in Manhattan fell from 98.7% in February to 94.9% in November. Overall, the retail occupancy rate declined nominally from 93.9% to 93.2% over the same period.

Currently, commercial properties represent nearly $ 5 billion in outstanding CMBS debt, for a total of 130 loans. This represents approximately 3.8% of the CMBS retail market and 40% of the CMBS retail market in New York State. Trepp has reported $ 570.9 million in retail loans in Manhattan for so far seeking financial relief related to COVID. Some large loans are among those in trouble, including a loan of $ 70 million fully guaranteed by The Gap store at 170 Broadway, and the loan of $ 205 million guaranteed by Kushner’s 229 West 43.e.

Since August, some personal loans have recovered. Default rates declined to 14.62%, with many loans reverting to their current status, although the special service rate remained virtually unchanged at 17.02%. Withholding policies helped support the recovery, as did policies that allowed borrowers to draw on reserves to meet debt needs.

The holiday season will prove to be critical for retailers, according to the Trepp X Compstak report. The holiday shopping season is usually a big part of retailers’ annual earnings, but the increase in COVID cases has pushed Manhattan towards another lockdown. Already, some restaurants have been hit by increased restrictions, and New York State Governor Andrew Cuomo has said the state is on the verge of a complete shutdown, an event that will undoubtedly have an impact on retail buying and spending.

According to Trepp, the winners will undoubtedly be retailers who have an omnichannel presence that allows them to quickly adapt to consumer needs and new regulations.

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