Standard & Poor’s Analyzes U.S. CMBS Exposure To Gulf Oil Spill

Standard & Poor’s Ratings Services has identified the commercial real estate collateral within its rated commercial mortgage-backed securities (CMBS) universe that in our view is most likely to be exposed to the oil spill in the Gulf of Mexico. While the Gulf Coast CMBS exposure is relatively minimal at this time, we believe the spill could cause longer-term effects that reverberate for months and perhaps years to come. 

We understand the most immediate impact of the oil spill has been on tourism, which has declined sharply as many vacationers appear to have cancelled their planned trips to the Gulf Coast’s various beach destinations. We believe the reduced recreational travel to the area could continue to affect the lodging sector throughout the summer months, and believe the retail segment could be affected as well. One positive note, in our view, is that the influx of cleanup-related workers to the area is at least partially offsetting the decline in tourist travel. In fact, Smith Travel Research recently reported that the average occupancy rate at hotels in the Gulf region for the week ending June 19 was higher than during the same week of last year. 

Officials generally appear hopeful that the recently installed cap on the leaking Macondo well will continue to prevent additional oil from leaking into the Gulf. Prior to the cap’s installation, officials estimated that the well expelled between 35,000 and 60,000 barrels of oil each day following the Deepwater Horizon rig explosion on April 20. In the weeks and months since, vast areas of the Gulf of Mexico have been closed for fishing, and light oil and tar balls are now washing ashore from the Louisiana wetlands to the beaches of the Florida Panhandle. To date, the spill has directly affected coastal regions of four states: Louisiana, Mississippi, Alabama, and Florida. 

We will consider and review any information we receive about the spill and the properties that may be affected by it as the situation continues to evolve. 


CMBS Considerations And Exposure To The Oil Spill

Given what we’ve estimated the exposure to be, we don’t expect the oil spill in the Gulf to have an immediate credit impact on U.S. CMBS ratings. We may see an increase in loan delinquencies and loan transfers to special servicers (i.e., the loan administrators that handle nonperforming loans) over the next few months, especially within the lodging sector, which we expect to be more directly affected by the downturn in tourist activity. We will continue to monitor the loans and transactions that are most exposed to the lodging sector as part of our ongoing surveillance efforts. To date, however, we have not initiated any rating actions as a direct result of negative property performance related to the Gulf oil spill. 

We have identified 252 CMBS loans secured by 302 properties with an outstanding allocated loan balance of approximately $1.61 billion in areas currently affected by the oil spill. These properties serve as collateral in 165 CMBS transactions we rate, and when combined, they account for about 0.53% of the total pooled balance of the affected transactions. To identify the total exposure, we focused on the coastal counties within the four affected states, and further pinpointed the impact area to the specific ZIP codes that touch the coastline. Comparatively, Hurricane Ike, which had a significant impact on the Gulf Coast region when it made landfall in September 2008, affected 1,700 loans in Standard & Poor’s rated CMBS transactions totaling roughly $13.4 billion. 

In looking at the oil spill’s coverage, not all areas along the coastline have been affected. In Florida, for example, the current impact area has thus far been limited to the Panhandle. Most of the state’s remaining coastline in the Gulf, as well as its southern and eastern coasts, remains largely unaffected. If these areas were to be affected, the total CMBS exposure would, in our opinion, be significantly larger. 

While the lodging sector accounts for just over 10% of the $1.61 billion CMBS exposure by property type, retail comprises just over half of the total (see table 1). In fact, the three largest loan exposures are secured by retail properties (see table 2). Over 70% of the retail exposure is classified as anchored retail, however, which we generally expect to exhibit more stability than unanchored or single-tenant properties. 

As of the June 2010 reporting period, 30 ($221.8 million, 13.8%) of the 302 assets on the exposure list were characterized as delinquent in their payment status. The Eastern Shore Centre loan ($69.6 million) is the largest delinquent asset and was transferred to special servicing in July 2009 due to imminent monetary default. The asset is now 90-plus-days delinquent. Based on a review of the remittance reports for March 2010, the period prior to the start of the oil spill, 25 ($198.2 million) of these 30 assets were already listed as delinquent. 

Table 1  |  Download Table

CMBS Market Exposure To Gulf Oil Spill By Property Type
Property type Amount (mil. $) Percent of total exposed principal balance
Retail 819.3 50.8
Multifamily 253.2 15.7
Office 246.8 15.3
Lodging 167.4 10.4
Other 124.8 7.7
Total 1,611.4 100
Source: Standard & Poor’s.

Table 2  |  Download Table

Top 10 Assets Exposed To Gulf Oil Spill
Deal name Property name Property type Allocated Loan amount (mil. $) Percent of exposed loan balance in transaction
BACM 2007-4 Lakeside Mall RT 95.0 4.3
GSMS 2004-GG2 Destin Commons RT 77.8 3.5
WBCMT 2006-C26 Eastern Shore Centre RT 69.6 4.2
GSMS 2007-EOP Lakeway Center Consolidated OF 52.8 1.1
BSCMS 2004-PWR6 Hilton Sandestin Beach Golf Resort & Spa LO 47.8 5.0
FUNB 2001-C3 Panama City Mall RT 36.8 6.6
WBCMT 2006-C26 Eastern Shore Plaza RT 28.6 1.7
CSFB 2004-C5 Shoppes Of Paradise Isle Shopping Center RT 25.9 1.6
GCCF 2003-C1 Heritage Plaza OF 23.1 2.9
JPMC 2005-CIBC11 Lowes Metairie RT 22.6 1.5
RT—Retail. OF—Office. LO-Lodging. Source: Standard & Poor’s.

No rated transactions have what we consider to be high exposure to collateral in what we define as the affected Gulf Coast region. Of the top 10 deals with the highest concentration of spill-exposed collateral, the concentrations are currently below 10% (see tables 3 and 4). Seven of the transactions in table 3 and seven of the transactions in table 4 also appear in table 2. 

Table 3  |  Download Table

Top 10 Deals* With Highest Concentration Of Properties Exposed To Gulf Oil Spill By Percent Of Pool
Deal name Percent exposure
FUNB 2001-C3 6.6
DDR 2009-DDR1 6.6
WBCMT 2006-C26 5.9
BSCMS 2004-PWR6 5.0
BACM 2007-4 4.4
GSMS 2004-GG2 4.2
GCCF 2003-C1 2.9
HOMETOWN 2007-1 2.6
CSFB 2004-C5 2.1
JPMC 2009-IWST 2.0
*Transactions with current pooled balance of $100 million or more. Source: Standard & Poor’s.

Table 4  |  Download Table

Top 10 Deals With Highest Concentration Of Properties Exposed To Gulf Oil Spill By Dollar Balance
Deal name Principal balance exposure (mil. $)
WBCMT 2006-C26 98.1
BACM 2007-4 96.7
GSMS 2004-GG2 94.4
GSMS 2007-EOP 52.8
BSCMS 2004-PWR6 47.8
BACM 2007-2 36.9
FUNB 2001-C3 36.8
CSFB 2004-C5 33.0
WBCMT 2006-C23 31.2
BACM 2006-4 29.7
Source: Standard & Poor’s. 

Source:  Standard & Poor’s 



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