Delinquent commercial mortgage backed securities backed by regional malls and other large retail properties reached $9.65 billion, or 18.7% of all CMBS mall loans, DBRS Morningstar said this week.
The regional mall delinquency rate is nearly four times the 4.7% U.S. CMBS delinquency rate for all property types, and a maturity wall is coming, presenting refinancing challenges while the coronavirus pandemic continues to wreak havoc on mall traffic and cash flows.
The bulk of the retail delinquencies — about $6.73 billion of the $9.65 billion total or 69.8% — are in 2011 to 2014 vintages, the firm said in a report. The 2014 vintage had the highest delinquency rate, at 37.1%, boosted by the Mall of America loan, the largest delinquent loan across all CMBS property types.
Approximately 37.2% of the delinquent universe has a maturity date between the beginning of 2021 and the end of 2022.
About 91.8% of the delinquent regional malls is now in special servicing. "This might suggest that long, drawn-out workout strategies could extend past initial maturity dates," Jason de Souza, senior analyst at the firm, said in a Nov. 18 presentation.
However, given retail's struggles even before the pandemic set in, lenders are likely to remain more conservative until economic conditions stabilize and malls have more opportunity to validate their valuations, de Souza said.
DBRS noted that the majority of the delinquent regional mall universe are in secondary markets, as opposed to high-density urban markets. "With regional mall delinquency rates increasing rapidly due to declining sales and occupancy, key factors to the restructuring process — including market position, stability of the asset, and borrower strength — will determine the likelihood of ultimate success," the firm said.
Larger, better-capitalized mall operators like Simon Property Group Inc. and Brookfield Property Partners LP have fared relatively well through the pandemic, with cash stockpiles and property concentrations in urban areas. But even that group is walking away from select properties.
"I think it's still a bit early to say exactly how this will play out for both of the major operators," senior analyst Alex Sgorlon said during the Nov. 18 presentation. "But I think it's important for everyone to be aware that even though Simon and Brookfield are extremely well positioned and have the deepest pockets ... they've shown in the past that they're not afraid to walk away from assets that no longer fit their portfolio, even if that means taking a big loss."