November 27, 2018
Office Depot and Staples continue to pivot away from traditional retail office-supply offerings and toward business-services solutions. A commercial mortgage-backed securities CMBS Alert published by Morningstar Credit Ratings identifies 313 properties, with a combined $5.41 billion allocated balance, that have exposure to office-supply stores Office Depot or Staples as a top-five tenant.
Morningstar Credit Ratings’ Gregory Baker, Associate CMBS Credit Analyst, CMBS Credit Risk Services, writes in the report, “We believe office-supply chains will pivot their focus away from traditional retail offerings and toward business-services solutions, largely supported by both companies’ mergers and acquisitions strategies and revenue trends.”
While this strategy may bode well for the individual companies, the lack of emphasis on its retail, or store-to-consumer products, creates longer-term concerns for commercial mortgage-backed securities investors, points out Morningstar.
Of the properties that have significant exposure, Morningstar pinpointed 22 loans, carrying a current balance of $173.2 million, that it believes carry elevated risk. Among the largest properties identified by Morningstar as having elevated risk are Moreno Valley Plaza in Southern California’s Inland Empire with a current property balance of $31.5 million, Parkway Crossing East Shopping Center in Washington, D.C. at $24.7 million, and University Park Shopping Center in Denver at $18.2 million.
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