NEW YORK (S&P Global Ratings) Oct. 11, 2022--While it is too early to assess the full impact of Hurricane Ian on S&P Global Ratings rated U.S. commercial mortgage-backed securities (CMBS), broad rating downgrades relative to the properties located in the impacted areas appear unlikely. This is based on the initial (mostly visual) evidence that we have been able to gather so far, combined with our CMBS industry standards typically requiring borrowers to maintain adequate insurance coverage, especially when assets are in zones considered at risk.

To better understand the exposure of property outstanding allocated loan amounts (ALA) to the effects of Hurricane Ian, we used the FEMA-4673-DR Florida Disaster Declaration as of September 29, which lists the 19 counties for which individual assistance is available. The resulting exposure amounts from that mapping exercise are broken out in table 1 by major property type.

Although there are roughly 100 at-risk transactions consisting of more than 300 properties, we estimate the potential exposure to be roughly $3.4 billion by property ALA--less than 1.5% of the U.S. CMBS universe that we rate. Roughly half of the exposed amount is multifamily.

Table 1

We identified only two U.S. CMBS securitizations that have 20% or more of their outstanding ALA in the affected counties: GSMS 2021-DM and GSMS 2021-STAR (see tables 2 and 3, respectively).

The first transaction, GSMS 2021-DM, has 18 multifamily properties totaling 3,483 units spread across Florida (16 properties; 58.6% of ALA), Massachusetts (one; 22.1%), and Utah (one; 19.3%).

Table 2

The other transaction with some form of geographic concentration is GSMS 2021-STAR, a single-asset single-borrower (SASB) transaction. Its three properties are part of a larger portfolio of seven multifamily properties totaling 2,494 units across Florida (three properties, 37.3% of ALA), Texas (one, 22.3%), Arizona (one, 17.3%), North Carolina (one, 13.0%), and Georgia (one, 10.2%).

Table 3

To our knowledge (which also includes feedback from colleagues living in the area), most of these locations experienced traumatic events (including but not limited to heavy winds, power outages, debris, and the like), but they luckily did not sustain the extent of damage suffered by the city of Fort Myers. We nonetheless drove by the one property in St. Petersburg (see table 3) to confirm our understanding of the unfolding events. Based on our inspection, there were no apparent signs of damage and the property seems to be operating as usual. We also drove by the two properties located in the city of Bradenton, which may have been more exposed to the hurricane than those in the Tampa area. We did not notice obvious signs of damage.

Table 4 lists the five largest properties by outstanding ALA in the FEMA list above. We toured the largest (Bowery Bayside Stepstone) because it has the largest property outstanding ALA at $117.9 million. Again, our inspection did not reveal signs of damage (in fact, it looked unchanged from our site visit in 2021), and the property appears to be operating normally.

While we did not stop by the Brookfield Properties-owned Coastland Center located in Naples, we understand from their website that the mall is now open for business after being temporally closed between September 28 and October 1 to ensure safety.

Sanibel Harbour Marriott Resort & Spa (a 347-key full-service water-front resort) is currently closed, according to the information available on the Marriott booking website. The property serves as unique collateral to the third largest loan within the COMM 2014-CR16 conduit transaction but represents less than 15% of the conduit. We will continue to monitor the situation as we expect to receive more information as it becomes available through the upcoming reporting packages.

Table 4

Historically, we haven't observed meaningful upticks in storm-related CMBS defaults. Nevertheless, our understanding of the scope of the damage evolves daily, and we will continue to assess the situation, monitoring the at-risk CMBS transactions and providing updates as warranted. Indeed, large amounts of rainfall from slow-moving storm systems can cause significant flooding. However, insurance coverage (for flood, windstorm, business interruptions, etc.) can mitigate an increase in mortgage defaults after such disasters. Given the importance of insurance coverage, commercial borrowers are contractually required to obtain and maintain adequate insurance coverage during the entire life of the loan. Further, U.S. CMBS transactions limit operational risks by allowing servicers to fund insurance costs directly, should a borrower fail to maintain its insurance coverage. Those advances (and the associated interest) rank ahead of the certificates to ensure property value preservation.