“Back in April, Trepp reported that CMBS customer service data indicated signs of wear and tear in the apartment segment in some of the major US markets,” wrote Manus Clancy, Trepp’s senior managing director. “To be sure, the crisis in the residential commercial real estate segment was in no way matched by the hotel or retail segment in terms of loan defaults and lower revenues or occupancy rates as a result of the pandemic.
“This month we came back with a follow-up review to see what the apartment building market looks like now that most borrowers have submitted financial reports for 2020 or data for the first quarter of 2021.
“In April 2021, Trepp reported that total apartment occupancy fell by just one or two percentage points cumulatively over the past year. However, there were significant deviations from market to market. There were a significant number of markets that did not have properties below 80 percent occupancy. This included many major US markets such as Phoenix, Orlando, Minneapolis, and Anaheim. There were also markets that showed a significant decrease in congestion, and we identified five markets for which more than 10 percent of loans were in less than 80 percent.
“This month we wanted to look at individual loans looking for the largest loans in the private label CMBS market where occupancy rate is less than 80 percent on this property…
“The numbers highlight that some markets, such as New York and San Francisco, experienced significant lending, which led to significant declines in occupancy rates. With the exception of one significant portfolio loan, all of the largest loans with occupancy rates falling below 80 percent are from MSA in New York or San Francisco.
“In New York, some of the largest loans with collateral of less than 80 percent are as follows:
“The 180 Water Street loan is particularly interesting. Watchlist comments indicate steady improvement in occupancy over the past few months: 59 percent as of December 2020; 63 percent in January 2021; 70 percent for March; 80 percent as of April. While this is a trend for one property in the Financial District, it may serve as an early indicator that occupancy rates at NYC MSA are on the rise.
“MSA San Francisco has two major properties on the list. Parkmerced’s $ 1.5 billion loan is secured by a complex of more than 3,100 apartments. In 2020, occupancy fell to 76 percent (from 94 percent for securitization). In 2020, the DSCR (NCF) was 0.86x. The $ 384 million NEMA San Francisco loan is secured by a 754 unit complex. In 2020, occupancy dropped to 72 percent (from 94 percent in 2019). The DSCR (NCF) in 2020 was 0.84x.
“The big portfolio loan we talked about is the $ 481 million portfolio loan we wrote about in our daily client-only article. TreppWire newsletter earlier this year. The loan is secured by 43 apartments in the Midwest and South of the United States, as well as notes on the JPMCC 2019-MFP deal with one borrower. The portfolio occupancy rate at the end of 2020 was 76 percent and the DSCR (NCF) was 1.06x.
“As we noted above, this is not a ‘retail apocalypse’ or a step towards 25 percent delinquency in hotel space over the past year. In fact, as the percentage of the US population that has been vaccinated against COVID-19 has grown and cities in the US have reopened, there is evidence of a strong recovery in demand for apartments in large MSAs.
“But savvy CMBS investors will be watching this in the future for signs of a crisis in markets that have seen significant job growth since the start of COVID-19.”