September 18, 2018
In late August 2017, Hurricane Harvey made landfall in Texas, then proceeded to park over east Texas and west Louisiana, effectively flooding both states. While damages and loss of life have been discussed extensively, what hasn’t been discussed is performance of commercial mortgage-backed security loans — CMBS loans — in Harvey’s aftermath.
A recent report from DBRS, entitled “Storm-Watching Real Estate: The Impact of Hurricane Harvey,” noted that, at the time that Harvey made landfall, approximately 1,100 loans secured by properties were in the area, with a total trust balance of approximately $170 billion. In the aftermath, “delinquency and special servicing trends showed spikes,” with delinquency creeping slowly upward.
Yet, interestingly enough, the percentage of CMBS loan delinquencies and defaults was relatively low to the standard conduits, in comparison.
The DBRS researchers concluded that the relatively low defaults of CMBS loans could have been due to the fact that:
- Owners of CRE have better resources than homeowners
- The demand for multifamily properties and hotels increased in Harvey’s aftermath, thereby propping up those property types, and
- Retail demand likely increased, as residents purchased supplies and building materials, meaning retail owners completed necessary repairs to boost shopper traffic
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