The results of CW Capital’s $3.2-billion bulk sale of seriously troubled CMBS conduit loans began to filter through servicer reports, according to a research piece written by Jeffries. As of the February servicer reports, 77 loans from 12 fixed-rate CMBS conduit transactions had a current balance at disposition of $2.15 billion. Only 2 of the 77 loans were liquidated at no loss. Of the 75 other loans, the average loss severity was 54%. One property, Pheasant Run Resort, experienced a loss of 100%; the sales proceeds of $5.65 million were insufficient to pay accrued interest and costs. In terms of dollars, the highest loss severity was incurred by the Hyatt Regency – Jacksonville, Florida, which sustained a loss of $118 million on a loan that carried a principal balance excluding accrued interest of $150 million.
Despite these seemingly depressing results, 40 of the sold loans resulted in proceeds that were in excess of their most recent appraised values, Jeffries noted. The fact that 40 of these sales reaped higher proceeds than recent appraisals underscores the recovery that continues in the commercial properties markets, assisted in large part by the depth of the current bid for distressed loans and assets and plentiful/cheap sources of debt.
Based on the overall positive results of the sale, additional sales may hit the market, as sentiment is that selling distressed assets today may be more feasible than waiting for further increases in value given the substantial costs to carry distressed assets.