www.REBusinessOnline.com Texas Real Estate Business • May 2017 • 43
ing average loss rate for retail loans
has been trending downwards since
mid-2016 to the 46 to 48 percent range
in recent months. The loss severity is
a percentage calculated by measuring
the amount of realized losses associ-
ated with a loan against the unpaid
principal balance at disposition. (As
an example, the loss severity for a $100
million loan that was closed out with
a $10 million loss is 10 percent). Dur-
ing this time frame, 9.59 percent of all
retail loans were written off with some
kind of loss at an average loss severity
of 48.06 percent. By comparison, 13.13
percent of office loans have taken a
loss, generating an average loss rate of
43.20 percent.
The current status of maturing loans
can serve as an indicator for losses and
the refinancing outlook. Based on a
February snapshot, around $102.2 bil-
lion in fixed-income mortgages are still
up for refinancing this year, with retail
loans making up around 29.81 percent
of this number. The maturing volume
falls to $86.4 billion combined between
2018 and 2021, but retail loans will
comprise large portions of each yearly
maturing total after next year. Looking
at retail loans that will come due for the
remainder of the year, 26.57 percent is
in special servicing while 25.08 percent
is 30 days or more delinquent on pay-
ment. 10.37 percent of the maturing
balance through December has been
assigned $3.2 billion in total ARAs, a
good chunk of which will show up as
losses taken by the borrower. The av-
erage occupancy level for this batch of
properties is currently pegged at 93.4
percent. Rising NOIs, persistent low
interest rates, and solid commercial
real estate fundamentals will enable
many of these loans to pay off in the
next few months while others obtain
additional financing.
Since risk retention rules that place
higher capital charges on issuers were
implemented in late December, CMBS
issuance has dropped off consider-
ably from previous years. Issuance
reached $11 billion in the first quarter
of 2017, which is a 34 percent decrease
from the same period in 2016. In par-
ticular, growing angst surrounding
widespread retail downsizing has
caused some pullback as the share of
retail loans in the issuance pipeline
dwindled to 15.27 percent in the first
three months of this year, down from
26.12 percent and 24.93 percent of to-
tal volume for 2015 and 2016, respec-
tively. Looking at the favorable pricing
garnered by risk retention deals issued
thus far, issuance may pick up as regu-
latory uneasiness recedes in the com-
ing months.
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