We discuss the Greenfield Office Portfolios being refinanced and a couple more Kmart closures being announced.

Transcription

1 Securitized Products Desk Strategy CMBS Market Watch March 16, 2017 Market activity and relative value CMBS spreads were mostly unchanged over the past week as secondary trading activity remained muted. While secondary volumes have slowed from the beginning of this year, we note that some of this is due to the tradeable CMBS universe declining as legacy paydowns have accelerated above consensus expectations, while new issue volume has been relatively light. Sector Strategists Roger Lehman Benjamin Rozyn In addition to negative net supply, CMBS dealer balance sheets have declined over the past few weeks and are now at their lowest levels. We believe these factors of net negative supply, lighter dealer balance sheets and investors concerned over replacement risk will continue to be supportive for CMBS spreads. Unlike cash, CMBX activity has remained robust, with retail concerns driving a large portion of the flow. CMBS and CMBX spreads and prices CMBS swap 1-wk Trailing 12-month spread/price 3/14/17 chg Min Max Avg Legacy CMBS AAA 10yr AM AJ Follow up: Gander Mountain files for bankruptcy Gander Mountain, the sporting goods retailer, has filed Chapter 11 bankruptcy. We list six CMBS loans with exposure to Gander stores that are slated to be closed. CMBS loans in the news We discuss the Greenfield Office Portfolios being refinanced and a couple more Kmart closures being announced. Online auction up Not including this week s auctions, we found $598 million of CMBS exposure in upcoming auctions through April. We list the exposure. 5yr AAA yr AAA AAA Junior AA A BBB CMBX.8 AAA AS AA A BBB BB Agency CMBS GNR 10yr FNA 10yr FREMF 10yr SBA yr Source: Credit Suisse, Markit DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES AND STRATEGIST CERTIFICATIONS. This document is a product of the Credit Suisse ( CS ) Fixed Income Sales and Trading Department. It is not a product of the Firm s Research Department. This material is intended only for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors pursuant to FINRA Rule This material is not independent of the Firm s proprietary interests, which may conflict with your interests. The Firm trades securities discussed in this report for its own account and on a discretionary basis on behalf of certain clients. Such trading may be contrary to the recommendations provided in this material. As part of the Trading Desk, the author may have consulted with the Firm s traders and other personnel while preparing this material, who may have already traded based on the views expressed in this material, or have existing positions in the securities discussed herein.

2 9/27/16 10/4/16 10/11/16 10/18/16 10/25/16 11/1/16 11/8/16 11/15/16 11/22/16 11/30/16 12/7/16 12/14/16 12/21/16 12/29/16 1/6/17 1/13/17 1/23/17 1/30/17 2/6/17 2/13/17 2/21/17 2/28/17 3/7/17 3/14/17 Market activity and relative value CMBS spreads were mostly unchanged over the past week as secondary trading activity remained muted. While the Northeast snowstorm on Tuesday and investors eagerly awaiting the Fed decision on Wednesday had in part contributed to the slower activity, volumes have still been on the lighter side for most of the past month, according to TRACE data (Figure 1). In fact, over the past 17 trading days, only twice did daily trading volumes exceed $1 billion. Figure 1: Daily CMBS trading volumes $mn CMBS Daily Volume 3,000 5-Day Average Trading Volume 2,500 2,000 1,500 1, Source: Credit Suisse, FINRA While secondary volumes have slowed from the beginning of this year, we note that some of this is due to the tradeable CMBS universe declining as legacy paydowns have accelerated, above consensus expectations, while new issue volume has been relatively light. To the latter point, five private label deals totaling $3.7 billion began marketing this week. In total, about $14 billion of issuance is expected for this quarter, which is the lowest first quarter total since With respect to paydowns, there have already been a number of large loans reported as having been paid off in the recently released March remittance reports and we continue to see reports of other loans being able to successfully refinance. For example, we discuss below the refinancing of two office portfolios across two 2012 vintage deals. In addition to negative net supply, CMBS dealer balance sheets have declined over the past few weeks and are now at their lowest levels. In Figure 2, we show the weekly CMBS dealer net positions from the Federal Reserve, since the data were tracked starting in April Based on the latest data available, for the week ending March 1, dealers have been reducing exposure for five weeks in a row. CMBS Market Watch March 16,

3 4/3/13 6/3/13 8/3/13 10/3/13 12/3/13 2/3/14 4/3/14 6/3/14 8/3/14 10/3/14 12/3/14 2/3/15 4/3/15 6/3/15 8/3/15 10/3/15 12/3/15 2/3/16 4/3/16 6/3/16 8/3/16 10/3/16 12/3/16 2/3/17 Figure 2: Weekly CMBS dealer net positions $bn Source: NY Federal Reserve Slower issuance and lighter dealer balance sheets also may explain why trading volumes have slowed. With less supply available, both in secondary and primary markets, investors may be more reluctant to sell bonds due to replacement risk. We believe these factors of net negative supply, lighter dealer balance sheets and investors concerned over replacement risk will continue to be supportive for CMBS spreads. While triple-a spreads now appear to be fair, relative to investment grade corporates, we believe they could continue to hold, barring any negative macro event, as a result of these dynamics. Additionally, better quality triple-bs still appear to offer value, relative to the high yield corporate sector, and we believe there will continue to be strong demand from investors for these types of securities. Negative retail headlines, however, will likely continue to weigh on the overall sector, especially for deals with exposure to lower quality retail. Unlike cash, CMBX activity has remained robust with retail concerns driving a large portion of the flow. We show the year-to- change in spreads for the BBB- and BB indices from Series 6 through 9 in Figures 3 and 4, respectively. Across these indices, only Series 9 is still tighter on the year. CMBS Market Watch March 16,

4 1/1/16 1/15/16 1/29/16 2/12/16 2/26/16 3/11/16 3/25/16 4/8/16 4/22/16 5/6/16 5/20/16 6/3/16 6/17/16 7/1/16 7/15/16 7/29/16 8/12/16 8/26/16 9/9/16 9/23/16 10/7/16 10/21/16 11/4/16 11/18/16 12/2/16 12/16/16 12/30/16 1/13/17 1/27/17 2/10/17 2/24/17 3/10/17 1/3 1/7 1/11 1/15 1/19 1/23 1/27 1/31 2/4 2/8 2/12 2/16 2/20 2/24 2/28 3/4 3/8 3/12 1/3 1/7 1/11 1/15 1/19 1/23 1/27 1/31 2/4 2/8 2/12 2/16 2/20 2/24 2/28 3/4 3/8 3/12 Figure 3: CMBX BBB- YTD spread changes Figure 4: CMBX BB YTD spread changes 250 BBB-.6 BBB-.7 BBB-.8 BBB-.9 bp 300 bp BB.6 BB.7 BB.8 BB Source: Markit, Credit Suisse Source: Markit, Credit Suisse Additionally, since the beginning of this month, BBB-.6 has underperformed, relative to BB.6, causing the spreads between the two to narrow. We show the difference in spreads between the two indices in Figure 5. Some of the recent pressure on BBB-.6 is likely due its outperformance for most of February, with the basis between the index and BB.6 reaching its highest point near the end of that month, at 470 bp. Figure 5: BBB-.6 spreads have widened more than BB.6 spreads since the beginning of this month, causing the basis between the two to narrow bp BB.6 vs BBB-.6 Source: Markit, Credit Suisse Follow up: Gander Mountain files for bankruptcy Gander Mountain, the sporting goods retailer, has filed Chapter 11 bankruptcy. A few weeks ago we highlighted CMBS exposure to Gander amid news stories that the company was preparing to file. In our initial search we found 30 loans across 28 deals with Gander Mountain listed as a top five tenant. CMBS Market Watch March 16,

5 The company is seeking to sell its assets on a going concern basis. If this endeavor fails they will have a going out of business sale. Gander Mountain has also petitioned the court to authorize store closing sales at 32 of its approximate 160 locations. This is the initial request and the company may request additional closures. We found six CMBS loans with exposure to Gander stores that are slated to be closed which we show in Figure 6. Figure 6: CMBS exposure to Gander Mountain stores slated to be closed Deal CMBX Loan Prop Loan bal Prop bal Loan % of deal Prop % of deal Loan status MR NCF DSCR Prop occ % Store % of loan Deal lookthr Lease exp exp CFCRE 2016-C7 Gander Mountain % 1.2% Cur 1.42x % 1.2% Oct-29 Waco, TX City, State COMM 2014-LC17 8 Triangle Plaza % 1.2% Cur 2.34x % 0.7% Aug-29 Raleigh, NC Devonshire Retail JPMCC 2016-FL8 Portfolio (Pool II) Oak Park Town Center % 4.9% Cur 1.56x % 1.4% Sep-29 Hixson, TN MSBAM 2014-C14 Round Rock Crossing % 2.2% Cur 1.67x % 0.4% Oct-23 Round Rock, TX RAITF 2016-FL6 Promenade Montgomery North % 3.0% Cur 1.35x % 1.2% Apr-30 Montgomery, AL WFRBS 2013-UBS1 7 Gander Mountain Tuscaloosa % 0.5% Cur 2.35x % 0.5% May-28 Tuscaloosa, AL Source: Credit Suisse, Trepp, INTEX, Gander Mountain CMBS loans in the news Greenfield Office Portfolios, backing two CMBX.6 deals, are being refinanced JPMCC 2012-C8 (CMBX.6) and JPMCC 2012-LC9 (CMBX.6) A portfolio of 21 suburban Maryland office buildings is being refinanced, according to Commercial Mortgage Alert. The new loan will be a floating rate mortgage totaling $127.6 million. The refinance should lead to the payoff of two 2012 loans. One is the Greenfield Office Portfolio, securitized in JPMCC 2012-C8 and totaling $54.1 million or 5.8% of the deal. The loan is scheduled to mature in August and is currently open to prepay. The loan is on watch and had a 2016 yearend DSCR of 0.75x with the buildings 75% occupied. The second loan, the Greenfield Office Portfolio II, is in JPMCC 2012-LC9 and totals $53.5 million (5.4% of the deal). The loan also matures in August, is currently open to prepay and carries a 1.75x DSCR, as of Q A couple more Kmart closures announced JPMCC 2012-CBX (CMBX.6) Following the large list of 150 Sears and Kmart stores slated for closure announced in January, news reports surfaced this week about two additional store closures. One of these has CMBS exposure. The Kmart store at Millbrook Plaza in Mill Hall, PA, is planning to close in mid-june, according to The Express. The property is one of three that backs the Zamagias Retail Portfolio loan securitized in JPMCC 2012-CBX ($11.9 million and 1.3% of the deal). The deal is a CMBX.6 obligation but we would not classify these properties as malls. Millbrook Plaza has an allocated balance that represents 37% of the loan and Kmart represents 25% of the property, with a lease that is set to expire in June The property was 96% occupied and the loan carried a 1.5x DSCR, as of the third quarter. CMBS Market Watch March 16,

6 Online auction up Close to $600 million of CMBS coming up for auction The forward auction pipeline for CMBS-related assets up for sale, on Ten-X, continues to grow for this and next month. Not including this week s auctions, we found $598 million of CMBS exposure in upcoming auctions through April. We list the exposure in Figure 7. Post legacy listings include Morningside Plaza (WFCM 2010-C1) There are four post-legacy loans that have exposure to the current pipeline. Three of these loans are current and backed by portfolio loans that allow for property releases (properties from the SunTrust Bank Portfolio I in JPMCC 2011-C5, the Normandy Portfolio in JPMCC 2016-FL8 and the ARC V Single Tenant portfolio in BBCMS 2015-STP). In addition Morningside Plaza is also scheduled for sale on the site. This property is an REO asset of WFCM 2010-C1 with an allocated balance of $3.5 million and 0.6% of the deal. The loan went REO in September 2016 and carries a most recent ARA of $2.3 million (as of last June). The asset was most recently appraised at $1.7 million but that valuation was d January Nearly two-thirds of BACM remaining balance listed for sale By balance, the BACM transaction has the largest exposure, at $178 million or about 63% of the deal, up for sale. The largest from this deal being auctioned is the Fiesta Mall REO asset, which has an associated balance of $83.3 million and makes up about 30% of the deal. The property is comprised of 319k square feet of a 933k square foot regional mall located in Mesa, Arizona. The loan was transferred to special servicing in February 2013 for an imminent default relating to potential tenancy issues, according to the servicer s commentary. We had also noted in January 2014 that Macy s announced it would be closing five locations, one of which was at this mall. A full history of write-ups on this loan can be found here. The most recent appraised value stands at $8.0 million, about 94% less than its $140.6 million valuation from November 2004, around the time the loan was originated. In addition to the outstanding $3.5 million of ASERs and $301k of advances, the exposure has accrued $4.4 million of non-recoverable interest. Central / Eastern Industrial Pool largest exposure listed for sale (WBCMT 2007-C33) The largest asset up for sale is the $83.6 million Central / Eastern Industrial Pool loan in WBCMT 2007-C33. The loan, which makes up 5.2% of the deal, is collateralized by 13 single-tenant industrial properties located in nine states totaling 2.1 million square feet. The overall occupancy rate across the portfolio declined from being fully occupied near the end of 2009 to 85% at the end of The DSCR also fell below 1.0x, starting in The loan was transferred to special servicing in July 2010 for an imminent default with the borrower requesting a modification. The portfolio was most recently appraised at $86.8 million, as of April According to the sale s description, the portfolio was 79% occupied at the end of last year. Additionally, the net operating income for 2016 totaled about $6.4 million, which is approximately 6% greater, year over year. Figure 7: CMBS exposure in Ten-X pipeline Deal Loan Property Curr bal * BACM Fiesta Mall % 8.0 Oct Y 4/5 Deal (%) ASER Adv. ARA One Park Place % 10.9 Dec Y 3/29 Bryan Dairy East % 19.2 May Y 4/26 FRI Portfolio Concourse Towers % 13.2 Nov Y 4/26 Emster Portfolio Tehachapi % 5.5 Jul Y 4/5 Nonrecov Kingsburg % 4.9 Jul Y 4/5 Auction Coalinga % 4.4 Jul Y 4/5 CMBS Market Watch March 16,

7 Figure 7: CMBS exposure in Ten-X pipeline Deal Loan Property Curr bal * Deal (%) ASER Adv. ARA Sierra Verde Plaza % 14.2 Apr Y 4/26 IPC Wichita Portfolio % 6.6 Jul N 4/5 FMC Technologies Building % 3.9 Oct Y 4/5 High Ridge Office Complex % 2.2 Oct Y 4/5 Olive Park Shopping Center % 1.9 Jul Y 3/29 BACM Total % BACM International Filing Company % 0.3 Apr Y 3/29 BACM Total % BBCMS 2015-STP ARC V Single Tenant Portfolio SunTrust - Fountain Inn, SC % 1.1 Oct N 3/29 BBCMS 2015-STP Total % BSCMS 2007-PW15 Brandywine Centre II % 12.0 Dec-06 N 3/29 BSCMS 2007-PW15 Total % CSFB 2004-C3 Bronx Apartments % 1.1 Oct Y 3/29 CSFB 2004-C3 Total % CSFB 2005-C6 McKinley Crossroads % 33.5 Aug N 3/29 CSFB 2005-C6 Total % CSMC 2007-C2 Conyers Commons % 13.8 Nov N 3/29 CSMC 2007-C2 Total % CSMC 2007-C4 Lakeview Plaza % 27.0 Feb N 3/29 Citizens Bank Plaza % 1.4 Jul N 4/5 CSMC 2007-C4 Total % GCCFC 2005-GG5 Schron Industrial Portfolio 237 Greenwood Court % 10.5 Sep Y 4/26 GCCFC 2005-GG5 Total % GCCFC 2007-GG9 Barnett Medical Center % 1.2 Dec Y 4/5 GCCFC 2007-GG9 Total % GECMC 2005-C4 Park Ventura Office Center % 18.4 Jul N 4/26 GECMC 2005-C4 Total % JPMCC 2006-LDP7 Westfield Centro Portfolio JPMCC 2006-LDP7 Total % Nonrecov Auction Westfield Westland Town Center % 22.8 Jun N 4/26 JPMCC 2011-C5 SunTrust Bank Portfolio I 7061 South US Highway % 1.5 May-11 N 3/ Rowan Road % 1.3 May-11 N 3/ East Virginia Avenue % 0.9 May-11 N 3/ Main Street % 0.7 May-11 N 3/ Wharf Street % 0.7 May-11 N 3/ South Mock Road % 0.6 May-11 N 3/ Front Street % 0.3 May-11 N 3/ South NC Highway % 0.2 May-11 N 3/ Railroad Avenue % 0.2 May-11 N 3/29 JPMCC 2011-C5 Total % JPMCC 2016-FL8 Normandy Portfolio Flanders Research Park % 5.3 May-15 N 4/5 JPMCC 2016-FL8 Total % LBUBS 2007-C6 Henrietta Plaza % 16.6 Oct N 4/5 Shoppes at Citiside % 6.5 Sep N 4/5 LBUBS 2007-C6 Total % CMBS Market Watch March 16,

8 Figure 7: CMBS exposure in Ten-X pipeline Deal Loan Property Curr bal * MLCFC Club House Road % 5.5 Aug-07 N 4/26 MLCFC Total % MSC 2006-HQ8 Allstate Charlotte & Roanoke - Roll-up % 22.4 Apr N 4/26 Deal (%) ASER Adv. ARA Roseville Portfolio - Roll-up Eureka Ridge (IV) % 7.1 Jan Y 4/26 McCormick Place Apartments % 18.1 Jan N 4/26 Hanover Portfolio - Merchant's Row (E) % 4.8 Aug N 4/26 Plaza Campana % 2.3 Jan N 4/26 Campus Courtyard I & II % 2.1 Jan N 4/26 Karen Lake Apartments % 3.4 Mar N 4/26 Food World Pensacola % 1.2 Feb Y 4/26 Walgreens - Summerville % 3.0 Nov N 4/26 MSC 2006-HQ8 Total % WBCMT 2006-C23 Crowne Plaza - Bridgeton, MO % 16.5 Sep Y 3/29 WBCMT 2006-C23 Total % WBCMT 2006-C25 Quantum Building C % 5.0 Mar N 3/29 Sam Hughes Place % 3.8 Apr N 3/29 WBCMT 2006-C25 Total % WBCMT 2006-C27 The Latrobe Office Building % 2.7 Mar N 4/5 WBCMT 2006-C27 Total % WBCMT 2007-C33 Central / Eastern Industrial Pool % 86.8 Apr N 3/30 WBCMT 2007-C33 Total % WFCM 2010-C1 Morningside Plaza % 1.7 Jan N 4/26 WFCM 2010-C1 Total % * Allocated property balance if property listed Source: Credit Suisse, Ten-X, Trepp Nonrecov Auction CMBS Market Watch March 16,

9 Technical up Figure 8: US CMBS pipeline March 2017 Deal type Rate type Size JPMDB 2017-C5 (Deal is in the market) Multiple Borrower Fixed 1,043 CST 2017-SKY (Deal is in the market) Single Borrower Floating 1,020 LNSTR (Deal is in the market) Other Fixed 759 WFCM 2017-RB1 (Deal is in the market) Multiple Borrower Fixed 638 CSMC 2017-HD (Deal is in the market) Single Borrower Floating 219 Citigroup, Principal, others Multiple Borrower Fixed 900 Wells Fargo, BofA, Morgan Stanley Multiple Borrower Fixed 900 Announced Total 5,478 Source: Credit Suisse, Commercial Mortgage Alert, Commercial Real Estate Direct Figure 9: Freddie Mac K-Deal Pipeline March 2017 Deal series/type Loan term Rate type Issuance week of Size K-W02 Fixed-rate conventional Various Fixed Mar April 2017 K-F29 7yr floating-rate conventional 7-year Floating April 3 1,500 K-J13 Fixed-rate supplemental Various Fixed April K-725 7yr fixed-rate conventional 7-year Fixed April 10 1,250 K-1503 Fixed-rate conventional Various Fixed April May 2017 K-64 10yr fixed-rate conventional 10-year Fixed May 1 1,500 K-F30 10yr floating-rate conventional 10-year Floating May 8 1,300 K-S08 10yr floating-rate seniors 10-year Floating May K-TBD 10yr fixed-rate conventional 10-year Fixed May Source: Freddie Mac, Credit Suisse Figure 10: 2017 CMBS issuance (in $ millions) Month Multi- Borrower Floater Single Borrower Other 2017 US Total 2017 Non-US Total 2017 Global Total US Agency CMBS* US Resecuritizations January 1, , ,692 6,061 0 February 2, , , ,793 6,768 0 March 2, , ,295 3,289 0 Total 5, , , ,780 16,119 0 * Multiple-pool Agency CMBS transactions only (i.e., deal tickers with GNR, FREMF, FNA, GEMS, MFMEG, SBAP and SBIC). Standalone DUS MBS and GN MBS pools are not included ** Floater category includes CRE CLOs. Source: Credit Suisse, Commercial Mortgage Alert CMBS Market Watch March 16,

10 DISCLOSURE APPENDIX Certification The author(s) of this material each certify, with respect to the securities or issuers that such author analyzed, that (1) the views expressed in this material accurately reflect his or her personal views about all of the subject securities or issuers, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the author in this material. Other Important Disclosures These materials have been prepared by a Sector Strategist. Sector Strategists are employees of CS's Fixed Income Sales and Trading Department and are supervised by Fixed Income Sales and Trading managers. Their primary responsibility is to support the trading desk. To that end, Fixed Income Sector Strategists prepare trade commentary, trade ideas, and other materials ("materials") in support of CS's trading desks. The Fixed Income Trading Desk trades or may trade as principal in the securities (or related financial instruments) that are the subject of these materials. As part of the Sales and Trading Department, the author of this material may have consulted with the Firm s traders and other personnel while preparing this material. Fixed Income Trading Desks may have accumulated, be in the process of accumulating, or accumulate long or short positions in the subject security or related securities on the basis of this material or other Sector Strategists' materials. Trading desks may have, or take, positions inconsistent with materials provided by Sector Strategists. Sector Strategists are not part of CS's Research Departments, and the views of CS's Trading Desks, including Sector Strategists, may differ materially from the views of the Research Departments and other divisions at CS. CS has a number of policies in place reasonably designed to promote the independence of CS's Research Departments from CS's Fixed Income Trading Desks, including policies relating to trading securities prior to distribution of research reports. These policies do not apply to the materials provided by Sector Strategists. The information in these materials has been obtained or derived from publicly available sources believed to be reliable, but CS makes no representations as to its accuracy or completeness. Sector Strategists may receive or develop additional or different information subsequent to your receipt of these materials. The materials provided by Sector Strategists are subject to change, and subsequent views may be inconsistent with information previously provided to you. CS does not undertake a duty to up these materials or to notify you when or whether the Sector Strategists' views have changed. These materials and other written and oral communications from Sector Strategists are provided for informational purposes only. They should not be considered sufficient upon which to base an investment decision. Solely for purposes of the CFTC s rules regarding derivatives research and to the extent this material discusses derivatives, this material is a solicitation for entering into a derivatives transaction and therefore should not be considered to be a derivatives research report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. Credit Suisse takes no responsibility for the content of any third-party site Links to third-party sites are provided solely for your convenience and information; accessing such sites is at your own risk. Copyright 2017 CREDIT SUISSE GROUP AG and/or its affiliates. All rights reserved. CMBS Market Watch March 16,