CMBS with Harvey exposure trade, investors await collateral details

31 August 2017

Several CMBS with exposure to Hurricane Harvey traded this week, in some cases at wider spreads, according to an investor and data maintained by Empirasign. But it is too early to assess the storm’s full impact on the CMBS market, as market participants aren’t expecting details of specific damages until after the Houston area stabilizes, according to two investors and an analyst.

 

The secondary market’s modest reaction to date is likely due to the fact that many traders and investors are on vacation, the first investor said. Still, on Wednesday there were a few trades of AAA bonds backed by debt on The Houston Galleria 10-12bps wider than trades earlier in the month, he said.

 

A more clear view of the full impact of Harvey on commercial property will emerge later, the second investor said. “We’re still in a situation with life-saving operations going on down there,” he said today. “The reality is, when we make calls, there’s no one answering. We’re just hopeful that there is sufficient insurance in place to deal with this.”

 

  • -A USD 1.1m JPMBB 2015-C28 A1 and a USD 1.4m JPMBB 2015-C28 A2 covered yesterday at S+ 17bps and S+ 31bps, respectively, according to Empirasign. The 1.2m sq ft super-regional Galleria mall in Houston backs the USD 1.05bn HGMT 2015-HGLR and USD 150m of debt in JPMBB 2015-C28, Trepp data show. The Galleria mall re-opened its doors today under limited hours after being shut since 27 August.
  • -A USD 16.158m DBUBS 2011-LC2A A1 and a USD 7.7m DBUBS 2011-LC2A A1FL traded yesterday after being talked at S+ 30bps and S+ 66.6bps, respectively, according to Empirasign. The transaction’s second-largest credit is the USD 214.525m Willowbrook Mall loan, backed by the 1.3m sq ft Houston retail property. Willowbrook experienced some minor flood damage but it is open for business and the majority of its tenants are open too, said a spokesperson for the owner, GGP, today.
  • -A USD 13.275m JPMCC 2011-C4 A4 covered yesterday at S+ 60bps off talk that averaged S+ 55bps, according to Empirasign. The deal’s second-largest loan is a USD 174.87m credit backed by Two Allen Center, a 995,623 sq ft Houston office property, Trepp data show. A spokesperson for the property did not respond to a request for comment.
 

Potential damage

 

The scope of the exposure is daunting. Britt Johnson, a senior director of US CMBS with Fitch Ratings, said the volume of Fitch-rated CMBS with exposure to Harvey is estimated at over USD 10bn, significantly larger than the USD 2.4bn in Fitch-rated CMBS exposed to Hurricane Katrina. “Houston is our fourth-largest city and FEMA counties cover a larger area with large populations so it makes sense that there are more properties,” Johnson said.

 

Among the largest Houston-area credits in special servicing are the USD 72.6m Marriott Houston Westchase loan in BSCMS 2007-PW18 and the USD 34.3m Bayou on the Bend apartments loan in COMM 2009-K3, Trepp data show. The latter is located on the banks of the Buffalo Bayou. A picture circulated online this week of a tenant watching flood levels rise on the complex’s ground floor.

 

Watchlisted loans include the USD 232m Bank of America Center loan in BSCMS 2007-PW17, the USD 120.8m The Galleria Office Towers loan in JPMCC 2011-C3, and the USD 85.2m Meyerland Plaza loan in LBUBS 2007-C7, Trepp data show.

 

The Galleria mall’s parking structure flooded during a 2015 storm, though it remains unclear what damage, if any, the property experienced during Hurricane Harvey. Local media reports noted flooding in the surrounding Galleria neighborhood, and a crowd-sourced map shows flooding in the streets bordering the complex’s southern edge. A spokesperson for property owner Simon Property Group did not respond to multiple requests for comment.

 

The property was insured at origination against flooding, with a cap of USD 500m per occurrence on storm surge-related flooding and wind damage and USD 200m on all other flood damage, according to original deal documents.

 

The flooding could spell further trouble for properties that were already experiencing some measure of distress. “The storm could add long-term uncertainty to the performance of the properties if homes are damaged and residents who left are unable to move back promptly,” analysts at Fitch wrote on 30 August.

 

Houston’s 1.2m sq ft Bank of America Center had minor seepage and was closed from Monday through Wednesday as a precautionary measure because a parking garage next door to the tower had flooded, said a person familiar with the property.


by Maura Webber Sadovi and Sarika Gangar