The Wall Street Journal recently reported that Moody’s stated that more than $54.3 billion in U.S. commercial mortgage backed securities have been transferred to loan workout specialists mostly because of payment delinquencies, a 320% increase since the start of the Covid-19 pandemic.
Hotel and retail properties, the sectors hit hardest by restrictions on travel and public gatherings to reduce virus transmissions, make up the vast majority of the debt transferred to special servicers.
Loans transferred to special servicers may end with a payment modification or foreclosure, resulting in losses for bond holders that are likely to increase if the economic downturn lasts long.
Interestingly, the $1.39 billion debt on the Mall of America is the largest single-loan in special service.
We are seeing some demand softness in these market sectors throughout the Midwest. Many feel these property types are in for a long haul before reaching normalized levels again. Which unfortunately are very likely to be at lower levels than previously seen.