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Securitization Research

U.S. CMBS Strategy


21 May 2015

CMBS Strategy Weekly

Comparing Moodys and Kroll


valuations on 2015 conduits; CMBS
2.0 performance update
Market Monitor

The CMBS market held flat this week and the issuance pipeline was cleared heading
into the Memorial Day weekend.

Analyzing Moodys versus Kroll valuations as ratings shopping becomes


the norm
3
Moodys and Kroll Bond Rating Agency (KBRA) have been the most popular ratings
agencies used for 2015 conduit issuance. We compare valuations from Moodys and Kroll
ratings agencies on 2015 issuance and find that the largest differences seem to be in the
hotel and office sectors.

CMBS 3.0 May remittance credit stories

This month, three new loans were transferred into special servicing and 92 were newly
watchlisted, with a total exposure of $1.2bn. In addition, the first 2015 vintage
watchlisting has appeared.

CMBS Credit Handbook May remits

This is an excerpt from our CMBS Credit Handbook - May remits, May 21, 2015, which
contains additional charts and tables.

Appendix

10

Weekly new issuance

14

Research catalog

15

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 16

Jasraj Vaidya
+1 212 412 2099
jasraj.vaidya@barclays.com
BCI, US
Aaron Haan
+1 212 412 3661
aaron.haan@barclays.com
BCI, US
Mengbai Wang
+1 212 412 2099
mengbai.wang@barclays.com
BCI, US
www.barclays.com

Barclays | CMBS Strategy Weekly

Views on a page
Comments
The CMBS market had a flat week, as secondary trading was light heading into the long weekend. Underlying fundamentals remain positive in
the CRE market as the economy continues to recover. We recommend new issue credit curve flatteners in the CMBS 3.0 space, but moving
higher up in the capital stack to avoid worsening underwriting. In particular, we recommend going long AA/single-A rated tranches in recent
issuance and investing in BBBs from the 2013 vintage, particularly H1 13 deals. We recommend staying neutral on 3.0 dupers, which have a
limited ability to tighten further in the face of increasing supply and low absolute yields. We are also neutral in the legacy CMBS space, where AJ
and mezzanine bonds appear priced to optimistic scenarios and senior bonds are exposed to fast CPY speeds. In agency CMBS, Freddie K 10y
A2 seniors have returned to a more historical range versus conduit AAAs, but remain attractive compared with similar duration agency MBS.

CMBS index monitor


U.S.
Agg.
Comp.

CMBS
Index

2.0
2.0

AAA

2.0
AAA
LCF

2.0 AA

2.0 A

2.0 BBB

Agenc
y All

Agcy
CMBS
8.5+

Agcy
CMBS
Mezz

Total return (bp)


May. 15-May. 20

-5

MTD May. 20

-37

-38

-63

-60

-103

-80

-74

-64

-40

-103

-44

YTD 2015

131

139

185

168

175

239

255

337

162

105

319

Excess return to Treasuries (bp)


May. 15-May. 20

12

11

15

15

17

17

13

16

MTD May. 20

14

14

19

17

26

29

22

26

25

37

22

YTD 2015

62

68

101

84

116

162

167

245

59

59

222

Excess return to Swaps (bp)


May. 15-May. 20

MTD May. 20

YTD 2015

48

54

Source: Barclays Research

Comparing Moodys and Kroll valuations on 2015 conduits;


CMBS 2.0 performance update
The CMBS market held flat this week, as trading activity was light ahead of the Memorial
Day weekend. While the S&P 500 touched new highs on Monday before selling off slightly,
and high yield credit was relatively unchanged, the largest volatility in the market appears to
have been in US Treasuries, as the market continues to balance economic data and rate hike
expectations. The benchmark 10y bond sold off 9bp on Monday, reversing a similarly sized
rally on Friday, and spreads were 1bp net wider on Tuesday and Wednesday, and were
trading about 6bp tighter on Thursday. Wider Treasury rates should help spreads compress,
or at least hold steady in the face of increasing supply expected in the weeks ahead.
In secondary trading of recent issuance, LCF AAA bonds were flat w/w on Thursday, at S+84bp.
Lower down the capital stack, single-A rated mezzanine tranches were flat, at S+204bp, while
BBB rated mezzanine tranches were unchanged, at S+333bp. Agency CMBS spreads were also
little changed, with 10y Freddie K 10y A2 tranches flat at S+45bp. Fannie DUS pools were 1bp
tighter, to S+55bp. Unguaranteed Freddie K tranches were also unchanged, with the BBB
rated C tranche at S+210bp and the single-A rated B tranche at S+155bp. Ginnie Mae
project loan REMICs were mixed, with the front 3y bond widening 5bp, to S+95bp, at 15 CPJ,
and the 5y sequential tightening 10bp, to S+125bp, at 15 CPJ.

Pipeline clears ahead of the long weekend, but should pick up sharply
heading into June
The CMBS new issuance market priced several deals, clearing out the inventory of those being
marketed, but issuance should return shortly after the holiday. The GSMS 2015-GC30 deal
priced on Friday, with spreads on the AAA in line with previous deals at S+86bp. However,
21 May 2015

Barclays | CMBS Strategy Weekly


mezzanine tranches priced wider, with the single A- rated C tranche pricing at S+225bp, 10bp
wider of the prior deal, and the BBB- rated pricing at S+360bp, 5bp wide of the prior deal. Also
pricing on Friday was a hotel single-borrower deal. This week, a regional mall single asset deal,
a hotel single borrower deal, and a floating rate deal also priced. As we reported last week,
issuance should pick up after the holiday into June, as multiple conduits are planned and
increasing maturities of 2005 vintage deals should help generate new supply (CMBS Strategy
Weekly, May 15, 2015).

Analyzing Moodys versus Kroll valuations as ratings


shopping becomes the norm
Moodys and Kroll Bond Rating Agency (KBRA) have been the most popular ratings
agencies used for 2015 conduit issuance. Of the 20 conduits issued in 2015, all have been
rated at a deal level by Moodys and 14 by Kroll, compared with 10 by DBRS, nine by
Morningstar, and nine by Fitch Ratings, according to Trepp (KBRA also rated the rake bonds
of another deal). Despite rating all deals this year, Moodys frequently does not rate
tranches below the Aaa or Aa level, providing only one A1 rating on the year, on a tranche
rated AA by other ratings agencies.
Conduits dropping Moodys below the AS level and other publications from Moodys indicate
that its ratings for middle mezzanine tranches would likely be lower than the desired
investment grade ratings for these tranches. Figure 1 compares the ratings of Kroll and
Moodys for 14 deals they both rated this year. Moodys was left off the C/D tranche ratings
and often gave lower relative ratings or was dropped from the AS and B tranches.
FIGURE 1
Moodys versus Kroll ratings in 2015 conduits rated by both firms

Super Senior tranches

Rated by Moody's

Rated by Kroll

14 Aaa

14 AAA

AS tranche

5 Aa1, 7 Aa2, 2 unrated

14 AAA

B tranche

3 Aa3, 1 A1, 10 unrated

5 AA, 9 AA-

C tranche

14 unrated

14 A-

D tranche

14 unrated

14 BBB-

Note Moodys rated six additional conduits launched this year. Source: Trepp, Barclays Research

To see what is driving the difference in ratings opinions, we compare the valuations the two
agencies put on top 10 properties from the 14 deals that they both rated, as well as how much
of this valuation difference emanates from assessed NCF versus a cap rate effect. Using the
LTVs provided by each lender, we can compare how the two ratings agencies differ across
sectors in their valuations (Figure 2). As expected, based on the difference in rating levels,
Kroll generally has higher valuations across property types. But the difference is particularly
notable in the hotel sector, where Kroll valuations are on average 20% higher than Moodys,
and in the office sector, where Krolls valuations on average are 14% higher. Valuations
were closer between the two on other sectors, such as retail, multifamily, and others, where
Kroll was generally 5-10% higher.

21 May 2015

Barclays | CMBS Strategy Weekly


FIGURE 2
Krolls property valuations are higher than Moodys, particularly in hotel and office
% Krolls value is higher than Moodys
Prop Type

% Bal

Property Value

NCF

Cap Rate Effect on


Value

Office

38%

14%

1%

13%

Retail

24%

9%

3%

6%

Hotel

18%

20%

22%

-1%

MF

12%

5%

2%

4%

Mixed

6%

8%

3%

6%

Storage

2%

5%

1%

3%

Industrial

1%

8%

6%

1%

Grand Total

100%

12%

5%

6%

Note: Simple averages over top 10 loans for 14 conduits from 2015. Source: Moodys, KBRA, Barclays Research

Moodys assessed net cash flows significantly lower than Kroll for hotels
and applies harsher cap rates to office
The differences in valuations are driven by two factors: the difference in assessed net cash
flow and the effect of the implied cap rate used to come up with a final valuation. For the
hotel sector, the differences in valuation were driven primarily by assessed NCF, with
Moodys underwriting hotel properties to 22% lower net cash flows than KBRA on average.
In the office space, while Moodys and Krolls assessed net cash flows are similar, Moodys
seems to apply a harsher cap rate penalty on office properties, leading to lower appraisals
than KBRA.
We should caveat that on some office properties with large single-tenant occupants,
Moodys uses a blended lit/dark analysis to come up with net cash flows but does not
report the blended cash flow in the presales. As a result, we performed this analysis using
their lit net cash flows, which could increase the attribution to cap rates. However, the
broad trends are still the same.

Other factors could be affecting the differences in ratings


Overall, Krolls property valuations are about 12% higher than Moodys, with about half of the
difference coming from assessed NCFs and the other half coming from the implied cap rates.
FIGURE 3
Hotel occupancies are at cyclical highs

FIGURE 4
Conduit hotels are written above average occupancies

12mma
Occupancy

120

80%

110

75%

100

70%

90

65%

Average Conduit Hotel Underwritten Occupancy (%)


Average historical RevPar
Average historical occupancy rates (%)

80

60%

70

55%
50%

60

45%
Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14
Industry
Luxury
All Upper

50

All mid
Source: Smith Travel, Barclays Research

21 May 2015

Economy

40
2004 2005 2006 2007 2008 2010 2011 2012 2013 2014 2015
Source: Smith Travel, Trepp, Barclays Research

Barclays | CMBS Strategy Weekly


While this difference likely drives some of the difference in their ratings opinions, there could
be other factors as well. For instance, the agencies could be using somewhat different
effective stresses at each rating level or other adjustments on top of these numbers.

Higher hotel valuations are a concern, given top-of-the-cycle conditions


While the higher valuations across sectors are somewhat worrisome, the largest concern for
us is the higher valuations Kroll is using for hotel properties. These could encourage
originators to overweight the hotel sector, which we consider the most volatile in CMBS.
Additionally, hotels are at all-time highs in terms of performance, with occupancy at record
levels, particularly in the high-end sector (Error! Reference source not found.), and similar
highs for ADR and RevPAR levels. While this indicates a strong market for lodging that is
unlikely to fade as the economic recovery continues, underwriting to these higher levels of
income/occupancy (Error! Reference source not found.) is a concern. This is especially
true given the highly volatile nature of occupancy/ income in hotels and the high operating
leverage in typical hotel properties. As such, we believe that properties underwritten to such
all-time high levels could be at risk even from a moderate slowdown, which cannot be ruled
out over the 10-year term of these mortgages.

CMBS 2.0 May credit performance


This month, three new loans were transferred into special servicing and 92 were newly
watchlisted, with a total exposure of $1.2bn. In addition, the first 2015 vintage delinquency
has appeared.

$96mn Ty Warner Hotels & Resorts Portfolio, the largest 2.0 loan yet, moved
to special servicer
Three loans with $105mn in balance transferred into special servicing this month (Figure 5).
The largest one is $96mn Ty Warner Hotels & Resorts Portfolio, securitized in MSC 2012-C4.
The hotel loan was transferred due to imminent-non monetary default, stemmed from its
owner, Ty Warner, who pled guilty to felony tax evasion in 2014; as a result, two of the
underlying hotels located in California had their liquor license suspended, as the state prohibits
them being held by a felon. We covered this transfer more in detail in $96mn Ty Warner Hotels
& Resorts Portfolio transferred to special serving (MSC 12-C4), May 5, 2015. The third and last
hotel had hurricane damage in 2014 and is undergoing repairs and is set to reopen in June,
according to hotels website. Despite these issues, we do not expect the loan to incur principal
losses because of a strong historical performance with a 2014 DSCR NOI at 4.26x.
The other two loans were relatively smaller. Lockport Professional Park, the Lockport, New
York, office building securitized in JPMBB 2014-C21, was transferred to special servicing due
to delinquency, despite reporting 2014 year-end DSCR NOI of 1.43x; the reason for the
delinquency is unclear. The last loan transferred into special servicing this month is Sabo
Self Storage, securitized in WFRBS 2012-C8, likely due to delinquent payment as well, as no
watchlist/special servicer commentary have been released.
FIGURE 5
Loans transferred into special servicing per May remittance
Deal

Loan

Property
type

City

State

Loan Balance

SS reason

MSC 2012-C4

Ty Warner Hotels & Resorts Portfolio

LO

Various

Various

96,281,771

Liquor licenses suspension

JPMBB 2014-C21

Lockport Professional Park

OF

Lockport

NY

6,825,419

Cash flow disruption

WFRBS 2012-C8

Sabo Self Storage

SS

Houston

TX

1,919,425

Cash flow disruption

Source: Trepp, Barclays Research

21 May 2015

Barclays | CMBS Strategy Weekly

FIGURE 6
Newly watchlist balance by vintage
$bn

2010

2.0

2011

FIGURE 7
Newly watchlisted exposure by deal in May remittance

2012

2013

2014

2015

1.8

Deal

Newly
Number of
Watchlisted loans newly
%
watchlisted

Newly
Watchlisted
Balance

MSBAM 2013-C8

10%

119,782,570

1.4

GSMS 2013-GC14

5%

62,016,374

1.2

GSMS 2013-GC12

4%

51,347,217

1.0

COMM 2013-CCRE12

4%

48,892,307

0.8

JPMCC 2011-C5

4%

46,309,693

COMM 2014-LC15

4%

42,020,177

WFRBS 2013-C11

3%

41,568,537

GSMS 2011-GC3

3%

41,480,343

JPMCC 2010-C2

3%

38,764,165

1.6

0.6
0.4
0.2
0.0
Jan-14

May-14

Source: Trepp, Barclays Research

Sep-14

Jan-15

May

Source: Trepp, Barclays Research

92 loans ($1.2bn balance) newly watchlisted in May, including a 2015 loan


In May, 92 loans with a total balance of $1.2bn were newly watchlisted, slightly above the
$1bn figure in April but below February and March (Figure 6). Once again, most watchlisted
loans came from the 2013 and 2014 vintages, as many of these properties began to report
their first financials. This can often trigger watchlistings due to pro forma underwriting, as
actual financials differ from higher underwritten financials, which ignore the effects of
short-term payment reductions, such as free rent periods for new tenants. A first 2015
vintage watchlist also contributed to the overall balance this month.

Most watchlisted loans unlikely to indicate immediate distress


In Figure 7, we have listed the top ten deals with highest newly watchlisted loan exposure in
May remittance. MSBAM 2013-C8 has the largest deal exposure at 10%, or $120mn, primarily
from the largest watchlisted loan this month, the $115mn The Crossings Premium Outlets,
Tannersville, Pennsylvania-based retail property was watchlisted due to deferred maintenance
items tied to life safety, according to watchlist commentary. This should not trigger any
default event as the loan has performed strongly, with a DSCR NOI of 4.1x in 2014. GSMS
2013-GC14 has the next largest exposure from four loans totalling $62mn, the biggest being
Mendoza Multifamily Portfolio, a loan comprising nine multifamily portfolios located in various
cities in California. The loan was also watchlisted for deferred maintenance and has a DSCR
NOI of 2.18x, which should not trigger any immediate distress.
In Figure 8, we have listed this months new watchlists for loans with a balance larger than
$20mn. U-Haul Storage Portfolio, securitized in COMM 2013-CCRE12, is a self-storage
portfolio located across the country. It was watchlisted due to approximately $330k in
missed tax payments on two of its properties, according to the watchlist commentary. The
loan had a consolidated 2014 DSCR NOI of 3.17x with a 79% occupancy rate and should
not trigger any default event.
The $45mn pari passu note loan Burnham Center, securitized in MSBAM 2013-C10 and C12,
was watchlisted as its DSCR NOI decreased from 2013 to 2014, due to increased operational
costs, which could add stress, as the most recent reported DSCR NOI in 2014 was 1.35x.
Watchlist commentary indicates, however, that 27 new leases were added and renewed
during 2014, and no large tenant faces immediate lease rollover for the coming two years.
Therefore, with the increasing occupancy, most recently 92% in 2014, we believe that the loan
will see its DSCR revert to a positive trend once the operational costs are fully absorbed.
21 May 2015

Barclays | CMBS Strategy Weekly


Aspen Heights Charlotte is the first loan from 2015 vintage, securitized in COMM 2015LC19, to be watchlisted since we started our coverage on new watchlistings. The $22mn
multifamily properly located in Charlotte, North Carolina, was watchlisted due to payment
delinquency, despite being reported as current in its payments.
FIGURE 8
Newly watchlisted loans with >$30mn per May remittance
Loan

Deal

Type

City

State

Balance

Watchlist Reason

The Crossings Premium


Outlets

MSBAM 2013-C8

RT

Tannersville

PA

115,000,000

Deferred maintenance issue

Mendoza Multifamily
Portfolio

GSMS 2013-GC14

MF

Various

CA

49,473,722

Deferred maintenance issue

COMM 2013-CCRE12

SS

Various

VR

48,892,307

Missed tax payments

JPMCC 2011-C5

MU

New York

NY

46,309,693

Large Tenant Vacating

MSBAM 2013-C10 / C12

OF

Chicago

IL

45,440,606

Increased operational costs - low DSCR

WFRBS 2013-C11

LO

Various

VR

41,568,537

Low DSCR compared to underwritten

Gateway El Segundo

JPMCC 2010-C2

MU

El Segundo

CA

38,764,165

Covenant compliance issue

250 Livingston Street

GSMS 2013-GC12

MU

Brooklyn

NY

36,195,348

Large Tenant rollover risk

WFRBS 2012-C7

MF

Oklahoma City

OK

32,568,262

Low DSCR compared to underwritten

U-Haul Storage Portfolio


24 West 57th Street
Burnham Center
Starwood Capital Hotel
Portfolio II

Isola Bella
Source: Trepp, Barclays Research

13 CMBS 2.0 loans went 30+ delinquent on May remittance


In Figure 9, we list CMBS 2.0 loans that have gone delinquent according to May remittance.
The largest, the $14.5mn office building 540 Atlantic Ave, securitized in WFRBS 2013-C14,
is delinquent due to low DSCR and has been with special servicer Rialto Capital since
December 2014. The $9mn San Antonio Self Storage Portfolio, a self-storage property
located in San Antonio, Texas, went delinquent this month, most likely due to the
bankruptcy filing from one of the guarantors. The loan went to special servicing in April and
was accommodated by our special servicing list from April (CMBS Strategy Weekly: 2014
Year-end Financials and 2.0 Credit Update, April 24, 2015).
FIGURE 9
Newly delinquent loans in May remittance
Deal

Property

Type

City

State

Balance

WFRBS 2013-C14

540 Atlantic Ave

OF

Brooklyn

NY

14,502,424

MSBAM 2014-C15

Campus Court

MF

Bloomington

IN

11,016,029

GSMS 2012-GCJ9

San Antonio Self Storage Portfolio

SS

Various

TX

9,179,842

GSMS 2013-GC12

Sethi Hotel Portfolio

LO

Various

VR

8,999,470

JPMCC 2014-C20

Purely Storage

SS

Various

CA

8,439,039

UBSBB 2013-C6

Mira Vista Apartments

MF

Houston

TX

5,595,718

COMM 2014-LC17

Cincinnati Portfolio Pool B

MF

Cincinnati

OH

5,198,028

COMM 2014-CR21

Holiday Inn Express Brookhaven

LO

Brookhaven

MS

5,146,526

COMM 2014-UBS3

Radcliff Square Shopping Center

RT

Radcliff

KY

4,933,659

WFCM 2010-C1

Morningside Plaza

RT

Dade City

FL

3,605,329

COMM 2012-CR5

Lillie's Times Square

RT

New York

NY

3,408,107

COMM 2014-UBS6

366 Knickerbocker Avenue

MU

Brooklyn

NY

2,186,589

WFRBS 2012-C8

Sabo Self Storage

SS

Houston

TX

1,919,425

Source: Trepp, Barclays Research

21 May 2015

Barclays | CMBS Strategy Weekly

FIGURE 10
CMBS 2.0 watchlisting % by vintage
14%

2010

2011

2012

FIGURE 11
CMBS 2.0 special servicing % by vintage
2013

2014

2010

12%

2012

2013

2014

0.7%

10%

0.6%

8%

0.5%
0.4%

6%

0.3%

4%

0.2%

2%

0.1%

0%
Dec-10

2011

0.8%

Dec-11

Source: Trepp, Barclays Research

Dec-12

Dec-13

Dec-14

0.0%
Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Source: Trepp, Barclays Research

CMBS 2.0 watchlistings and special servicing percents growing


The amount of CMBS 2.0 loans watchlisted has been growing in 2015, particularly for 201114 vintages, as the loans begin to season and more risks appear (Figure 10). The pace of
watchlisting for the 2013-14 vintages is also higher than for the prior 2.0 vintages. 2010
vintage watchlistings have come down slightly, but remain at the highest percentage in the
2.0 vintages, despite the strong underwriting of this class. While some watchlisting is
normal for a vintage, the values are relatively high for the space, considering the solid
economic performance of the past few years. Special servicing percents have shown a sharp
increase in 2015, as several large loans, such as the Ty Warner Hotels loan discussed above,
have moved into special servicing (Figure 11). Despite the pickup, the percentage of loans in
special servicing remains below 1.0% for all vintages.

CMBS Credit Handbook May remits


This is an excerpt from our CMBS Credit Handbook - May remits, May 21, 2015 which
contains additional charts and tables.

The 60+ day delinquency rate for pre-2009 vintages increased slightly to 8.9% in the
May remittance as increasing payoff of 2005 vintage loans may push up pre-09
delinquencies in the coming months. The overall delinquency rate for term defaults is on
a downward trend in 2015 after staying rangebound in late 2014, while maturity
defaults continue to range around 2%.

Liquidations picked up in May as several deals had auction sales to clear out their
delinquent inventory. As a result, liquidation with losses larger than 3% surged to
$1050mn, while liquidations for losses <3% fell slightly to $571mn.

3m average severity decreased slightly in the May remittance with term defaults severity
(for losses larger than 3%) just above 60% while maturity defaults severity (for losses larger
than 3%) decreased to below 50%. The overall severity level fell below 60% this month.

Our delinquency attribution table (page 7) shows that the rate of overall changes in 60+
delinquency increased marginally in May by 0.1%. New loans transferred to 60+
delinquency added 0.5% to the balance, while liquidations of delinquent loans this
month reduced delinquencies by 0.5%.

The rate of new loans entering special servicing increased in the May remittance.
Currently measuring $1.9bn, up from last months $0.85bn.
21 May 2015

Barclays | CMBS Strategy Weekly

The cap rate spread and the financing spread stayed approximately unchanged on a q/q
basis, with the cap rate spread picking up slightly to 432bp, and the financing spread
measuring just above 175bp.

B notes liquidations also surged this month driven by the B-note payoff of the $85mn B
note of the Schron Industrial Portfolio with 100% loss. In total, $214.6mn B notes were
liquidated in total in Q2 2015. B note severity also trended higher to 73% as a result,
bringing the B note liquidation severity closer to the historical average.

The average overall time to liquidate, measured by time taken to roll from special
servicing to liquidations, decreased to above 27 months per May remittance following
an upward trend past two months, as auction liquidations sped up timelines.

The delinquent to current cure rate, as a percent of delinquent loans, decreased to 2.2%
in the May remittance report. The cure rate may slow as the delinquent pipeline ages
and fewer loans are modified, in resonance with the increased liquidations this month.
The current to delinquent roll rate increased slightly, to 0.5% for all vintages and to
0.7% for pre-2009 vintages.

As a result of the increase in liquidations, both ASER and accumulated interest shortfall
decreased in May remittance, while ASER % as interest shortfall increased.

The JPMCC 2008-C2 AM tranche continued to incur shortfalls this month, amounting to
$437k, increasing the accumulated interest shortfall for the tranche to just over $8mn
and several AJ tranches continue to take shortfalls. However, no new AM or AJ bonds
took shortfalls this month.

The surge in special servicing transfers was partly due to the $200mn NGC Rubicon GSA
Pool (WBCMT 05-C20/C21) and $57mn Scottsdale Plaza Resort (CB15), both moved
into special servicing this month. For more info, please see $200mn NGP Rubicon GSA
Pool (WBCMT 05-C20/C21) and $57mn Scottsdale Plaza Resort (CB15) move into
special servicing, April 29, 2015.

The $96mn Tyler Warner Hotels & Resorts Portfolio also transferred into special
servicing this month (CMBS: 2.0 $96mn Ty Warner Hotels & Resorts Portfolio transferred
to special serving (MSC 12-C4), May 5, 2015), representing the largest CMBS 2.0
transfer to date.

The $76.6mn Gallery at Cocowalk has been sold for $87.5mn according to CREDirect.
The loan was last modified in 2010 through a rate reduction and hope note
modification, which reduced the rate to 5% and modified the hope note with an A-note
carrying a balance of $48.73mn and B-note $27.92mn ($48.7mn/$27.9mn AB modified
Gallery at Cocowalk sold for $87.5mn; hope note likely to see near full recovery (GSMS
2006-GG8), May 8, 2015).

The surge in B note severity and liquidations was partly due to GCCFC 2007-GG9, which
received a wave of cash flows and realized losses according to May remittance after
seven loans with $242mn were liquidated, the $200mn A note/$85mn B note Schron
Industrial Portfolio paid off with 100% loss to the B note, and an $18mn loan prepaid
with yield maintenance (GG9 sees $242mn liquidated at 57% severity and no B-note
recoveries for Schron Industrial Portfolio payoff ($220mn/$85mn), May 12, 2015).

Lastly, May remittance indicates that the loan backed by The Mill, a Greenwich,
Connecticut, office building, moved into special servicing. The $38.95mn loan,
representing 1.21% of JPMCC 2007-LD11 was transferred for imminent default,
according to special servicer CWCapital, and the borrower is requesting a modification
($39mn The Mill moves into special servicing as Connecticut offices continue to struggle
(LD11), May 15, 2015).
21 May 2015

Barclays | CMBS Strategy Weekly

APPENDIX: SPREAD MONITOR


New issue CMBS 3.0 credit curve
(bar shows T-6M min/max spreads)

Fixed-rate conduit/fusion over swaps (bp)

400

5/21

Avg.

High

Low

350

AAA LCF

96

97

105

92

300

AM

156

155

165

142

AJ

508

506

521

488

AAA LCF

88

89

97

83

AM
AJ

116
297

0
0

115
297

125
307

102
282

AAA LCF

95

96

104

88

AM

90
154

0
0

90
155

97
162

72
137

2007

Category

2005

2006

6-month

1 wk
chg

AJ

250
200
150
100
50
0
5yr

AAA LCF

AM

AA

BBB-

CMBS 3.0 spreads


6-month

6-month

Rating

5/21

1-wk. chg.

Avg.

High

Low

Rating

5/21

1-wk. chg.

Avg.

High

Low

2015 5y
2015 LCF
2015 AS
2015 AA
2015 A
2015 BBB-

57
86
121
153
207
338

0
0
0
0
0
0

59
87
119
154
205
340

66
94
124
165
215
354

53
82
111
146
193
328

2013 5y
2013 LCF
2013 AS
2013 AA
2013 A
2013 BBB-

53
77
109
127
183
311

0
0
0
0
0
0

55
79
109
130
185
315

62
86
116
142
198
332

49
73
103
120
176
301

2014 5y
2014 LCF
2014 AS
2014 AA
2014 A
2014 BBB-

57
85
117
148
195
333

0
0
0
0
0
0

59
86
116
151
198
337

66
94
124
165
212
354

53
81
111
141
188
323

2012 5y
2012 LCF
2012 AS
2012 AA
2012 A
2012 BBB-

46
71
98
120
173
266

0
0
0
0
0
0

48
73
98
122
174
269

55
80
105
133
186
283

42
67
92
113
166
258

Spread comparison versus benchmark sectors


Agency debentures

Fixed-rate ABS

CMBS 2.0 AAA spread pick-up (bp)


Term

Libor
OAS

20-May

13-May

5y

49

49

50

10y

80

80

81

6-mo. avg.

CMBS 2.0 spread pick-up (bp)


Category
Cr. Cards AAA

Avg.
life

Spread
(Libor)

20-May

5 yr.

57

Credit

13-May
0

6-mo.
avg.
2

MBS

CMBS IG index (bp) spread pick up


Spread
(Tsy)

20-May

13-May

6-mo.
avg.

Credit index

136

16

16

16

Industrials

140

12

12

12

Financials

144

CDX.IG.OTR*

122

CMBS 2.0 AAA spread pick-up (bp)

Current Coupon

OAD

Libor
OAS

20-May

13-May

6-mo.
avg.

6.9

30

27

27

29

Note: *Protection Premium. Agency, ABS, and MBS are compared against similar-term CMBS 2.0 spreads. Source for all tables on this page: Trepp, Barclays Research

21 May 2015

10

Barclays | CMBS Strategy Weekly

AGENCY CMBS
Agency CMBS spreads are now available on Barclays Live, Keyword Chart.
Agency CMBS Spreads

160

Category

Bond

5/21

1 wk chg

4 wk chg

140

5yr A1
7yr A2
10yr A2
IO (X1)
B

30
34
45
140
155

0
2
0
0
0

1
2
1
5
15

120

210

15

DUS

55

-1

-5

Ginnie Project Loan


Remic

Fannie
DUS

Freddie K series

Spreads over time


10yr Freddie K
DUS
10yr Ginnie

100
80
60
40
20

3yr

90

-5

5yr

125

-10

-25

10yr

130

10

Z
IO

125
195

0
0

10
20

0
Dec-11

Jul-12

Feb-13 Sep-13 Apr-14 Nov-14

Spread comparison versus agency RMBS


Freddie K series vs Agency RMBS PAC
Freddie AAA spread pick-up vs
OAS (bp)

Spread

Libor
OAS

5y PAC

75

25

7y PAC

80

30

10y PAC

85

35

10

15

RMBS

Fannie DUS vs Agency RMBS PAC

5/21
5

5/14
10

RMBS
10yr PAC

Spread

Libor
OAS

85

35

Fannie DUS spread pick-up vs


OAS(bp)

5/21
20

5/14
26

Ginnie SEQ vs Agency RMBS SEQ*


Ginnie spread pickup vs OAS
spread (bp)

RMBS

Spread

Libor
OAS

3yr SEQ

60

-1

5/21
91

5/14
86

5yr SEQ

70

120

130

10yr SEQ

80

10

120

115

110

40

85

90

Note: *GNR spreads assume 15 CPJ pricing convention. Closest available term agency PAC/spread used for comparison.
Source for all tables on this page: Barclays Research

21 May 2015

11

Barclays | CMBS Strategy Weekly

THE SYNTHETIC SUPPLEMENT


CMBX spread performance
CMBX.6-8

CMBX.1-5
6-month

6-month

Rating
AAA.8
AS.8
AA.8
A.8
BBB-.8
BB.8

5/20
92
119
159
216
358
575

1-wk. chg.
0
1
0
0
-1
-1

Avg.
91
118
157
215
358
578

High
93
120
159
217
362
584

Low
90
116
155
212
355
574

AAA.7
AS.7
AA.7
A.7
BBB-.7
BB.7

79
107
145
195
310
513

-1
-1
-1
-2
0
0

85
115
148
194
317
518

99
134
175
228
363
585

78
100
140
182
299
487

AAA.6
AS.6
AA.6
A.6
BBB-.6
BB.6

68
97
133
179
280
483

-1
-1
1
-1
0
0

75
107
137
182
286
484

89
126
164
220
336
544

67
96
129
171
269
455

Rating
AAA.5
AM.5
AJ.5
AAA.4
AM.4
AJ.4

5/20
58
196
842
47
157
1033

1-wk. chg.
0
1
6
0
-1
5

Avg.
63
217
802
52
186
946

High
79
242
865
82
245
1033

Low
53
190
707
42
152
799

AAA.3

34

44

75

31

AM.3
AJ.3
AAA.2
AM.2
AJ.2
AAA.1
AM.1
AJ.1

134
1238
30
89
822
26
50
366

-1
8
-2
-1
16
-2
-4
-1

168
1102
39
109
672
34
69
329

240
1238
81
154
822
87
121
390

132
943
24
76
539
16
39
251

Source: Barclays Research

DTCC : CMBX Net Long Protection for Dealers (Notional, $mn)


6-month
Rating
AAA
AM
AJ
AA
A
BBB

5/15/15

5/8/15

Avg.

High

Low

2422
-3
249
-89
200
-76

2483
-4
239
-89
144
-76

1470
-35
193
49
51
-209

2734
63
289
205
200
-66

-271
-114
77
-89
-57
-397

AAA.6
AS.6
AA.6
A.6
BBB-.6
BB.6

572
-21
294
134
276
246

710
-1
284
124
311
262

1028
-201
178
-3
162
157

1796
4
315
134
420
404

140
-378
-3
-137
-94
16

AAA.7
AS.7
AA.7
A.7
BBB-.7
BB.7

2126
-11
19
-125
542
35

1965
-11
-1
-58
557
30

1166
-27
-1
-113
397
65

2126
45
128
-16
666
208

-151
-117
-141
-264
66
-126

AAA.8
AS.8
AA.8
A.8
BBB-.8
BB.8

626
0
35
12
-114
-11

426
20
35
-4
-100
4

284
4
25
13
-49
-10

626
20
35
41
15
4

137
0
0
-4
-114
-26

CMBX.AAA Net Long Protection for Dealers (Notional, $bn)


3.0

AAA. 1-5

AAA. 6

2.5

AAA. 7

AAA.8

2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15

Source: DTCC, Barclays Research

21 May 2015

12

Barclays | CMBS Strategy Weekly

TRADING VOLUME UPDATE


TRACE reported volumes
5/8 - 5/14

5/15 - 5/21

6m Average

Total Volume Traded (Notional)

5,561,182,600

5,906,839,300

5,143,520,057

Total Volume Traded (Market Value)

5,334,842,101

5,727,738,614

5,073,976,888

Customer Sell (Notional)

2,576,712,300

2,826,890,000

2,186,439,204

CMBS P&I Customer Buy (Notional)

2,703,412,000

2,755,329,200

2,534,544,443

126,699,700

-71,560,800

348,105,239

Net Customer Buy (Notional)


IG% of Volume

54%

67%

61%

Avg IG Price

103.6

103.2

103.2

3,106,763,700

3,069,547,400

4,605,906,882

79,257,077

196,883,955

229,415,797

Total Volume Traded (Notional)


Total Volume Traded (Market Value)
CMBS IO Customer Sell (Notional)

1,060,506,100

807,837,900

1,087,009,132

Customer Buy (Notional)

1,872,807,900

752,116,000

1,604,449,007

812,301,800

-55,721,900

517,439,875

Net Customer Buy (Notional)


Source: FINRA, Barclays Research

Bid list activity (cash market)*


Breakdown by type of security (%)
AAA

CMBS 2.0

Time Period

Notnl.
($mn)

Snr.

AM

AJ

Mezz.

AAA/AJ

Mezz.

Single
Borrower

Agency

Others

May 14 - May 21
Weekly avg. (6-mo.)

1,540
1,262

18
24

3
5

3
5

6
10

19
22

7
5

11
8

31
21

2
2

Bid list activity broken out by seller


Breakdown by type of seller (%)*
Time period

Notional ($mn)

Money Mgr.

Ins. Co.

Hedge

Other

May 14 - May 21

1,540

56

12

11

20

Weekly avg. (6-mo.)

1,262

58

13

13

19

Source: Barclays Research

Note: This represents all the CMBS bid lists that Barclays saw in the past week, not necessarily all securities traded. Source for all tables on this page: Barclays Research

21 May 2015

13

Barclays | CMBS Strategy Weekly

CMBS NEW ISSUANCE SUMMARY


Month

Conduit

Floating-Rate
Fusion

SingleBorrower

REO Rental

Agency

Seasoned/
Subordinate

Liquidation
Vehicle

Total

2015 Cum.*

January

$3,765

$466

$900

$1,100

$4,691

$0

$0

$10,921

$10,921

February

$5,029

$346

$6,569

$553

$5,308

$0

$0

$17,805

$28,727

March

$4,387

$545

$4,963

$637

$3,676

$0

$113

$14,320

$43,047

April

$4,324

$0

$3,972

$381

$5,376

$210

$0

$14,261

$57,308

May

$5,459

$181

$1,391

$0

$4,639

$0

$0

$11,670

$68,978

2015 Total

$22,964

$1,538

$17,794

$2,670

$23,690

$210

$113

$68,978

2014 Total
2013 Total

$57,128
$53,074

$7,525
$1,464

$24,485
$24,538

$5,627
$479

$53,547
$66,381

$278
$343

$873
$757

$149,464
$147,037

2012 Total

$32,165

$1,560

$9,839

$0

$52,421

$0

$668

$96,653

2011 Total

$25,067

$1,403

$2,676

$0

$35,088

$0

$0

$64,234

2010 Total

$6,918

$0

$6,939

$0

$26,757

$1,021

$0

$41,635

2009 Total

$0

$0

$2,089

$0

$8,055

$0

$0

$10,223

2008 Total

$10,708

$1,438

$0

$0

$3,674

$0

$0

$15,398

2007 Total

$189,298

$20,865

$13,548

$0

$3,166

$4,122

$0

$233,365

2006 Total

$162,813

$27,128

$10,857

N/A

$7,452

$860

$0

$209,111

2005 Total

$136,224

$19,688

$11,170

N/A

$4,625

$2,088

$0

$173,794

2004 Total

$74,064

$13,093

$5,672

N/A

$6,220

$285

$0

$99,334

2003 Total

$52,885

$14,551

$7,776

N/A

$8,347

$2,637

N/A

$86,195.2

June
July
August
September
October
November
December

Source: Commercial Mortgage Alert, Barclays Research

2013 and 2014 monthly issuance


$bn

2014 Conduit/Single-Borrower/Floating-Rate issuance (RHS)

100

2015 Conduit/Single-Borrower/Floating-Rate issuance (RHS)

$bn
14

Cumulative 2014 issuance

12

Cumulative 2015 issuance

80

10
60

40

6
4

20

0
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Note: Cumulative only includes conduit, single-borrower, and floating-rate issuance. Source: Commercial Mortgage Alert, Barclays Research

21 May 2015

14

Barclays | CMBS Strategy Weekly

RESEARCH CATALOG
Please see Barclays Live, keyword= CMBSPUB for the complete list of past publications
Outlooks and Primers

Loan level Intradays

CMBS Outlook 2015: Testing the rebound


A guide to bond selection in new issue IOs
Introducing Barclays CMBS Credit Model
A guide to single-borrower deals
Outlook for cap rates
Navigating CMBS remittance reports
Scaling the maturity wall
Agency CMBS: A Primer
Interest shortfalls: A Primer
Remittance Updates
CMBS Credit Handbook - May remits
Agency CMBS Handbook - May
Recent Highlighted Publications
CMBS Focus: CMBS Sector Overview: Retail

4/17/15

CMBS Focus: CMBS Sector Overview: Office

3/13/15

S&P banned from rating new CMBS conduits for


one year; minimal effect on CMBS market

1/21/15

Final Credit Risk Retention Rules released

10/22/14

Improving CRE market to have steady but modest


growth into 2015

10/10/14

Some hope for hope notes?

9/5/14

$620mn of CMBS exposed to Napa, California,


earthquake; effect likely limited

8/25/14

How far has 2014 new issue quality slipped?

7/18/14

Nearly $500mn in auctions this summer

6/27/14

Agency CMBS rallies as Agg inclusion nears

6/20/14

First look at 3.0 delinquencies

5/30/14

More CWCap auctions on the way

5/23/14

What drives early prepayments?

5/9/14

The question of coterminous leases

4/25/14

Nearly $200mn in auctions set for May and June

4/21/14

Tracking delinquent loan cash flows

4/11/14

An early look at YE 13 financials

4/4/14

How predictive are reported appraisals?

3/21/14

More details on the Crapo-Johnson proposal for


agency CMBS

3/17/14

Final Credit Risk Retention Rules released

21 May 2015

10/22/14

$39mn The Mill moves into special servicing as Connecticut


offices continue to struggle (LD11)
GG9 sees $242mn liquidated at 57% severity and no B-note
recoveries for Schron Industrial Portfolio payoff
($220mn/$85mn)
CMBS: 2.0 $96mn Ty Warner Hotels & Resorts Portfolio
transferred to special serving (MSC 12-C4)
$200mn NGP Rubicon GSA Pool (WBCMT 05-C20/C21) and
$57mn Scottsdale Plaza Resort (CB15) move into special
servicing
2.0 $50mn Hudson Valley Mall moves into special servicing
after JCP closes (CFCRE 2011-C1)
$320mn in CMBS out for auction in late April and May, $62mn
exposure in WBCMT 2006-C24
$375mn modified The Belnord pays off with 1.3% loss; should
reduce future AJ shortfalls (LDP9)
$77.6mn in auction liquidations hit MLCFC 2007-7 at 46%
severity, AJ credit support nearly gone
MLCFC 2006-4 sees large principal cash flows after Park La
Brea prepayment ($775m, MLCFC 06-4/LDP8) and $123mn
of liquidations (49% severity)
$68.8mn Indian River Mall & Commons receives $39mn
appraisal (BACM 05-1)
$83mn Fiesta Mall receives updated appraisal at just $8mn
(BACM 2005-3)
Sears REIT plan could lead to closures in H2 15
$38.5mn Eastland Mall sold for $9.25mn at auction for an
81% severity (LBUBS 07-C1)
$14.7mn The Hills bid to $18.1mn at auction; indicates
around 14% potential severity (GSMS 11-GC5)
$62mn 50 Danbury Road and $7mn 64 Danbury Road move
into special servicing (LBCMT 2007-C3)
$83mn REPM portfolio moves into special servicing (JPMCC
2006-CB16)
$775mn Willis Tower (Sears Tower) sold for $1.3bn to
Blackstone; could be defeased (LBUBS 07-C2, 07-C7, 08-C1,
JPMCC 13-WT)
$133mn Galleria at Pittsburgh Mills moves into special
servicing near maturity after losing Sears (MSC 2007-HQ11)
$300mn/$80mn AB modified Columbia Center out for sale
(MSC 2007-HQ12)
$190mn Pickwick Plaza pays off with 1% loss (GG9)
$154mn Ridgedale Center payoff workout fee leads to large AM
shortfall (BACM 2005-3)
$570mn out for auction in March and April, including first REO
CMBS 2.0 loan
$116mn 1818 Market Street moves into special servicing due
to tenant-in-common bankruptcy (WBCMT 06-C24)
$Hope note-modified $72mn/28mn Park 80 West pays off
with 100% B note loss (LBUBS 05-C2)
$200mn Pickwick Plaza receives rate reduction modification; open
to prepayment with conditions and Hawaiian Retail portfolio
($46.5mn/$16.5mn) pays off with 100% B-note loss (GG9)
Update: $53mn National Envelope receives $35mn appraisal;
takes first ASER Shortfall (GECMC 07-C1)
$53mn National Envelope receives $35mn appraisal; takes
first ASER Shortfall (GECMC 07-C1)
$3.2bn+ exposed to RadioShack potential bankruptcy, but
only $33mn has >20% exposure
$417mn in CMBS out for auction in February and March, GG9
and MLCFC 07-7 have the largest exposure

5/15

5/12
5/5

4/29
4/17
4/16
4/15
4/14

4/13
4/13
4/10
4/1
3/26
3/25
3/18
3/18

3/17
3/12
3/12
3/12
3/10
3/6
2/18
2/18

2/12
2/11
2/10
2/4
2/3

15

Barclays | CMBS Strategy Weekly

US SECURITIZATION STRATEGY ANALYSTS


Ajay Rajadhyaksha
Co-Head of FICC Research
+1 212 412 7669
ajay.rajadhyaksha@barclays.com
BCI, US

Sandeep Bordia
Head of Securitized Products
Research
+1 212 412 2099
sandeep.bordia@barclays.com
BCI, US

Jasraj P. Vaidya
Head of US Residential
Credit/CMBS Strategy
+1 212 412 2265
jasraj.vaidya@barclays.com
BCI, US

Sandipan Deb
Agency MBS Strategy
+1 212 412 2099
sandipan.deb@barclays.com
BCI, US

Aaron Haan
US Residential Credit/CMBS
Strategy
+1 212 412 2099
aaron.haan@barclays.com
BCI, US

Anuj Jain
Agency MBS Strategy
+1 212 412 2099
anuj.x.jain@barclays.com
BCI, US

Brian Ford, CFA


Esoterics/Consumer ABS
Research
+1 212 412 6701
brian.ford@barclays.com
BCI, US

Dennis Lee
Esoterics/Consumer ABS
Research/Agency MBS Strategy
+1 212 412 2099
dennis.lee2@barclays.com
BCI, US

Leo Wang
Agency MBS Strategy
+1 212 412 7571
leo.wang@barclays.com
BCI, US

Mengbai Wang
CMBS Strategy
+1 212 412 2099
mengbai.wang@barclays.com
BCI, US

21 May 2015

16

Analyst Certification
We, Aaron Haan, Jasraj Vaidya and Mengbai Wang, hereby certify (1) that the views expressed in this research report accurately reflect our personal views
about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or
indirectly related to the specific recommendations or views expressed in this research report.
Important Disclosures:
Barclays Research is a part of the Investment Bank of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). For current
important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Research Compliance,
745 Seventh Avenue, 14th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.com or call 212-526-1072.
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should
be aware that Barclays may have a conflict of interest that could affect the objectivity of this report. Barclays Capital Inc. and/or one of its affiliates
regularly trades, generally deals as principal and generally provides liquidity (as market maker or otherwise) in the debt securities that are the subject of
this research report (and related derivatives thereof). Barclays trading desks may have either a long and / or short position in such securities, other
financial instruments and / or derivatives, which may pose a conflict with the interests of investing customers. Where permitted and subject to
appropriate information barrier restrictions, Barclays fixed income research analysts regularly interact with its trading desk personnel regarding current
market conditions and prices. Barclays fixed income research analysts receive compensation based on various factors including, but not limited to, the
quality of their work, the overall performance of the firm (including the profitability of the Investment Banking Department), the profitability and revenues
of the Markets business and the potential interest of the firm's investing clients in research with respect to the asset class covered by the analyst. To the
extent that any historical pricing information was obtained from Barclays trading desks, the firm makes no representation that it is accurate or complete.
All levels, prices and spreads are historical and do not represent current market levels, prices or spreads, some or all of which may have changed since the
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