11.24.17: The CMBS Loan Agreement Is Your Road Map

I get many calls from clients asking whether they can do this or that under the terms of their CMBS conduit loan. I do the research and answer their questions. Where do I find the answers? In the CMBS Loan Agreement! At the closing of a CMBS conduit loan, one of the loan documents executed by the borrower is the Loan Agreement. This 100-plus page document provides complete instructions on how to manage your CMBS conduit loan.

Granted, the document is written in legalese and can be a little difficult to interpret. However, the document begins with roughly 30 pages of definitions, written such that the concepts are reasonably understandable. Within the definitions are loan basics such as the interest rate, maturity, monthly payment and amortization. But many complex items can also be found in the definitions — the definition of yield maintenance, restoration threshold for a casualty, definition of permitted transfers and definitions for pretty much every other item that might come up during the term of the loan, for example.

After the definitions, the Loan Agreement has 10-12 Sections, some of which are very relevant to complying with the terms of the loan:

  • Financial Reporting – type of financial reports and timing;
  • Property Alterations – dollar limits on improvements without lender consent;
  • Insurance: Casualty and Condemnation – how to handle insurance claims;
  • Reserves and Escrows – how they are determined and released;
  • Property Management – how to replace a property manager; and
  • Transfers – the procedure to complete an assumption – to mention a few.

The CMBS Loan Agreement is always provided to the borrower in soft copy. It provides the road map for what to do to comply with the terms of the loan. It’s a very good idea to keep it handy.

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11.20.17: Hotel Franchise Termination Windows Are Tricky in CMBS

Some franchisors, including Choice Hotels International and LaQuinta Franchising, allow for mutual termination of franchise agreements during the franchise term. This provision is known as “termination windows.” Franchisees pushed for this provision as a way to get out of franchise relationships that were not working out, particularly if the franchisor was not delivering reservations from the central reservation system or if the brand perception among guests was declining. The way the provision works in general is either the franchisee (hotel owner) or the franchisor (hotel brand) could mutually terminate the franchise agreement on the 5th or 10th anniversary of a typical 15-year franchise agreement without any financial payments to either party (sometimes referred to as liquidated damages). The termination windows were also advocated by the Asian-American Hotel Owners Association (AAHOA) in its set of standards called the Points of Fair Franchising.

The concern with termination windows in CMBS conduit lending is that the CMBS lender recognizes that a significant portion of the value of the hotel lies in the franchise brand. Typically, the hotel revenue and cash flow are directly correlated to the franchise brand: The better the brand perception, the better the property performance. The CMBS lender is making the loan under the assumption that the franchise brand in place at closing will remain for the loan term. The termination window puts this premise in jeopardy as the franchisor can terminate the franchisee during the loan term. As a result, the termination windows that fall within the loan term need to be removed from the franchise agreement prior to closing. ValueXpress has successfully negotiated the removal of franchise terminations from agreements for its CMBS clients. ValueXpress uses its long-standing relationships with franchisors to get this done for its clients.


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11.15.17: Positive Self-Storage Trends Continue, But Will Overbuilding Occur?

Self-storage property occupancy is running at approximately 90% in the 50 major metropolitan markets at the end of the third quarter of 2017 and roughly at that level for all of 2017, according to REIS. Rent growth continues in all regions of the United States except the Southwest, which shows some rent weakness amid rising new supply. Self-storage loans remain one of the best performing asset classes in CMBS conduit lending, with a current delinquency rate of under 0.10%. With all these positive factors, developers are building new self-storage properties at a rapid pace, creating concern about overbuilding.

While demand remains strong, certain markets may see an inability to absorb all the new units. Already the Southwest is showing signs of rent weakness. Market watchers are eying Denver, Miami and Texas as markets at risk for overbuilding. According to STR, a Tennessee-based market research company, a total of 85 self-storage projects are in various phases of development in Miami. This total includes unconfirmed projects that have not yet been zoned or approved. Of these 85 projects, STR expects 43 to be completed, which would be 10% growth in supply.

While 2017 appears to be another banner year for the self-storage industry, all eyes will be watching newly completed projects in 2018 to see if the new units can be rented quickly without significant rental concessions.


Posted in CMBS Conduit Loans, Commercial Lending, Commercial Real Estate Loans, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress | Tagged , | Leave a comment

ValueXpress Obtains $9-Million CMBS Conduit Loan for a Neighborhood Shopping Center in Wilmington, DE for Client of CCTG Grad

ValueXpress has arranged a $9,000,000 CMBS conduit loan for the refinance of Tally Ho Shopping Center, a 25,100-square-foot neighborhood shopping center anchored by a Bank of America banking center that is leased until 2030. The property is located at the corner of Naamans Road and Concord Pike in Wilmington, Delaware, a heavily trafficked intersection in the Brandywine section of Wilmington. The center is 100% leased to ten tenants, some of which have been located in the center for over 20 years. The transaction refinanced a maturing CMBS conduit loan that was originated ten years ago and provided a return of equity to the borrower.

Bank of America anchor tenant

Anchor tenant of the Tally Ho Shopping Center.

The transaction was originated by Lawler Rogers, a CCTG graduate, who partnered with ValueXpress to complete the transaction. The deal was completed within 45 days and closed on time, such that the borrower avoided paying double interest on the new and existing loan.

“The transaction proceeded smoothly thanks to the skills that the team members brought to the table, starting with borrower Sharon Miller,” commented Michael D. Sneden, Executive Vice President at ValueXpress. Sharon asked ‘what do I need to do’ and completed all her work with a great attitude.” The transaction was underwritten by Jim Brett, head of underwriting at ValueXpress. The team was assisted by Robert Wittig, the property and leasing manager, who pulled together market information and managed the survey process. Finally, the closing was completed on time by Julie Panaro of the Panaro Law Group.

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11.10.17: Trepp: CMBS Delinquency Rate Drops Sharply in October

The Trepp CMBS delinquency rate dropped sharply in October, marking the fourth straight monthly decline. The delinquency rate for U.S. commercial real estate loans in CMBS is now 5.21%, down 19 basis points from the September level. That is the second-largest rate drop measured in the last 19 months. One year ago, the overall 30-day delinquency rate was 4.98%. The delinquency rate had been climbing consistently for more than a year as loans issued in 2006 and 2007 reached their maturity dates and were not paid off via refinancing. In the 16 months between March 2016 and June 2017, the delinquency rate moved up 13 times. However, now that the dreaded “wave of maturities” has passed, delinquency levels have receded as well.

Trepp notes that further declines in the overall reading are possible in the coming months as fewer 2006 and 2007 loan reach their maturity dates and more distressed loans are resolved.

Vacancy by Property Type – October 2017



  2017 2016 BP Change
Industrial 6.24% 6.55% -31
Lodging 3.42% 3.84% -42
Multifamily 2.98% 2.00% -2
Office 6.92% 7.10% -18
Retail 6.47% 6.56% -8

Source: Trepp

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11.5.17: Sears and Kmart: More Stores to Close

Sears Holdings Co. announced that it will close another 18 Sears stores and 45 Kmart locations in late January 2018. This round of closures brings the total number of Sears and Kmart stores shutting down this year to 243. After the locations shutter, about 680 Sears stores will remain operating in the United States, down from 3,500 locations in 2010. Currently, 610 Kmart locations are operating in the United States.

Market professionals believe the company is likely to file for bankruptcy after the Christmas 2017 selling season. The iconic store chain, whose goods once filled U.S. households from the garage to the living room, has struggled to remain relevant as shoppers increasingly bypass it to head to big box giants like Walmart or specialty retailers like Best Buy and Home Depot.

There are continuing signs that Sears is no longer the dominant player it once was. Last month, Sears announced that for the first time in more than 100 years, it would no longer sell Whirlpool appliances because the two companies could not reach an agreement on price.

Posted in CMBS, CMBS Conduit Loans, CMBS Securities, Commercial Lending, Commercial Mortgage-Backed Securities, Commercial Real Estate Loans, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress | Tagged , , | Leave a comment

11.1.17: Multifamily Trends – Vacancies Rise as Supply Exceeds Demand

Property managers are offering larger and larger concessions to try to attract tenants to their apartment communities, but the vacancy rates are inching higher anyway.

The percentage of vacant apartments in Manhattan in October rose to 2.47%, up from 2.39% the year before. At the same time, property managers offered potential renters months of free rent, equal to 28% of a year’s lease in October, on average, up more than four percentage points from a year ago.

Marcus and Millichap notes in a recent report that apartment absorption has begun to fall short of the wave of new unit deliveries in numerous markets, modestly softening Class A fundamentals. Class B and C apartments remain near record occupancy levels, but some renters from these properties are being enticed into higher-tier apartments by a range of incentives. Looking forward, positive employment trends and a thinning development pipeline offer the potential for performance reinvigoration.

For additional details, see the complete report at http://www.marcusmillichap.com/research/researchreports.

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