What COVID-19 fallout means for DFW's $943M in CMBS debt coming due
Updated: Apr 23, 2020
An American City Business Journals analysis has identified 4,600 commercial properties across the country with $30 billion in commercial mortgage-backed securities, or CMBS, debt coming due in the next six months. In North Texas, 92 properties are on the hook for some $943 million in CMBS debt.
With the global economy in a tailspin and little sign of it stabilizing, the likelihood of these loans being paid in full — whether through refinancing or property sales that can satisfy lenders — is slim. North Texas' CMBS debt leads the state and is nearly double that of Houston's, which has $457 million in debt coming due across 93 properties, while Austin has even less at about $201 million in debt across 32 properties. North Texas ranks ninth in the country as far as most CMBS debt coming due, behind other major metros like New York, Washington, D.C., and Los Angeles.
What North Texas' CMBS loans look like
Locally, many CMBS loans have been taken out for hotels and motels. To be exact, 37 hotels and motels, owned by nine different groups, according to the Business Journals analysis. Those include Carrollton-based G6 Hospitality, which owns 13 North Texas motels; Irving-based CorePoint Lodging Inc., which owns 11 La Quinta by Wyndham hotels; and Alpharetta, Georgia-based Atrium Hospitality, which owns two local hotels.
The largest local property that will soon mature is the 1.2 million-square-foot Town East Mall in Mesquite. Owned by New York City-based Brookfield Properties, the mall has a $145.4 million loan due on June 1, according to research by the Business Journals. Brookfield Properties could not be reached for comment.
The largest office building on the list is 500 N. Central Expressway in Plano. Owned by Plano-based Moxiebridge Inc., the 5-story, 237,626-square-foot building has a $22.9 million loan set to mature on Sept. 6. Moxiebridge was unable to be reached by press time.
Many of the largest loans coming due locally involve an entire portfolio of properties.
For example, 455 Motel 6 properties across the country have a loan due in the amount of $1.36 billion, plus another $147.5 million in mezzanine debt that will mature Aug. 10 – though it is not clear how many of these properties are owned by G6 Hospitality. G6, which operates and franchises more than 1,400 Motel 6 and Studio 6 Extended Stay properties, did not respond to requests for comment.
Other properties also have large loans coming due. A joint venture between West Palm Beach, Florida-based Chatham Lodging Trust (NYSE: CLDT) and Colony Capital (NYSE: CLNY) has a $780 million loan coming due on June 15 across 48 hotels, including three in North Texas. Neither company was able to comment by the time this story was published.
Dallas-based Ashford Hospitality Trust (NYSE: AHT) has a $720.7 million loan coming due on April 1 across 22 hotels, including one in Irving. A message left for a company official was not returned.
Finally, Atrium Hospitality has a $635 million loan coming due on June 9 across 24 properties, including two in North Texas. The company declined to comment for this story.
While the fate of many CMBS loans with local ties remains uncertain, at least one company has been given some temporary relief.
CorePoint Lodging (NYSE: CPLG) had an $880.7 million CMBS loan coming due on June 1.
However, according to the company's end-of-year report from March, its loan allows for five successive extensions of one year each. In the meantime, the company is looking to sell-off 132 of its hotels to pay off this debt, according to the regulatory filing. Its portfolio currently includes 11 La Quinta by Wyndham hotels in North Texas.
COVID-19 impacts likely worse than those of the 2008 financial crisis
Since malls and hotels are already being deeply impacted by COVID-19, several massive loans coming due on some properties adds pressure.
"From what we've been hearing from our members, occupancy has dropped. Many hotels have occupancy in the single digits. It's difficult to forecast because things are changing all the time. It's unlike anything we've ever seen before," said Traci Mayer, executive director of the Hotel Association of North Texas.
Though lending fundamentals are better than they were before the 2008 financial crisis, experts in the CMBS field say this downturn will likely to be worse than 2008.
Experts say that for the time being, those that are owed from CMBS loans should grant temporary relief to borrowers.
"If you do see loans mature, you'll see a lot of defaults. We've received so many calls from borrowers and owners saying there's no way they can make April payments. That will happen. The hope is to grant them some sort of temporary relief and modify loans, maybe in the form of deferred interest payments. Extensions would be best, but that doesn't mean they don't come with strings attached. There's also no indication that waivers will happen, but it's too early to really say," said Tanya Hart Little, CEO of Hart Advisors Group.
When asked about a bank's willingness to work with borrowers, Little said they must.
"They don't want all these [loans] back," she said.
Are banks on the coronavirus hook?
Banks hold the majority of the nation’s commercial mortgage debt, with small banks in particular accounting for approximately two-thirds of those loans. Federal loan data indicate there was approximately $1.5 trillion in commercial real estate debt on the books of U.S. banks at the close of 2019, with Wells Fargo & Co. (NYSE: WFC), Bank of America Corp. (NYSE: BAC) and JPMorgan Chase & Co. (NYSE: JPM) accounting for about 13 percent of that total. CMBS loans account for about 50 percent of the U.S. commercial real estate loan market.
Real estate experts interviewed for this story cautioned that it is too early to tell whether banks will ultimately absorb whatever fallout is to come from the coronavirus crisis, or whether landlords will break with tradition and negotiate down lease contracts to accommodate struggling tenants.
In the short term, some landlords in Dallas are working with their tenants, granting them free rent until their businesses are allowed to reopen as usual. Sources also agree that lenders have no desire to take ownership of properties if it can be avoided.
Bloomberg's Senior REIT Analyst Jeff Langbaum said he takes some comfort in knowing lenders and landlords alike are far better capitalized versus 2008, when it was commonplace to see loan terms for overdue mortgages extended indefinitely — a practice known as “extend and pretend” — or for property owners to simply turn in keys — “jingle mail” — and walk away from properties. What also was different then, he said, was the economic fallout was far more gradual than what’s unfolding today.
“There are so many balls in the air right now it’s impossible to see where the pain points will emerge,” Langbaum said.
The Business Journal | March 24, 2020 | Dallas. News