10.14.14: Will Declining Oil Prices Affect CMBS Conduit Loans in North Dakota?

After declining gradually for three months, oil prices suddenly tumbled almost $4 on October 14. It was the largest single-day decline in more than a year, and it brought the price of Brent crude, an international benchmark, to $85 per barrel. At its peak in June, a barrel cost $115. Oil professionals estimate an $80 level where the economics of drilling and fracking in the United States provide only a modest return on investment and only break even in the $70 area.

Should the price of oil continue to slide, producers may begin to slow and possibly reverse employment gains in oil producing areas. A work force reduction in locations primarily dependent on oil employment could have a negative impact on CMBS loans in those areas.

How much CMBS exposure is there in oil-related areas and how much is directly dependent on oil employment? Let’s take a close look at an example: Williston, North Dakota, located in the south central portion of the state. According to the 2000 census, the population of Williston approximated 12,500 versus an estimated 20,000-plus today. Williston sits atop the oil-rich Bakken formation and oil production has fueled the city’s growth.

In 2013 and 2014, 14 CMBS conduit loans with a principal balance of $144 million were originated in Williston, no small sum. Of the loans, 8 were secured by apartment complexes, 4 were secured by hotels and 2 were secured by manufactured housing communities. All of the assets classes depend heavily on a stable population. Based on this one small sample, it’s pretty easy to see that if oil-related employment was reduced in any significant way, these loans would likely to struggle to perform.


This entry was posted in CMBS Conduit Loans, Commercial Real Estate Loans, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress and tagged , , , , , , , , , , . Bookmark the permalink.

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