Distressed Property Count Climbs, Loan Downgraded on Twin Chicago High-Rises, Pebblebrook Refinances Margaritaville Resort

Distressed Property Count Climbs, Loan Downgraded on Twin Chicago High-Rises, Pebblebrook Refinances Margaritaville Resort

Increase in Distressed Properties: After declining in July, the number of properties supported by commercial mortgage-backed securities loans that entered special servicing increased significantly in August. There are now 2,275 such properties, an increase of 5.8%.

Properties are frequently transferred to special servicing when borrowers fall behind on their payments or ask for help coming up with a repayment strategy.

Office buildings witnessed a 1.7% increase in the properties in special servicing, totaling 612 structures totaling 111 million square feet. Notably, according to the most recent bondholder report for CMBS deal COMM 2014-UBS3, a State Farm-occupied portfolio of 14 buildings was one of the office properties placed under special servicing in August. A $383.5 million loan encompassing 3.4 million square feet across 11 states and various transactions has been securitized and represents the security for this portfolio. Almost two and a half years ago, State Farm implemented a corporate-wide work-from-home strategy, making 2.6 million square feet of the portfolio space available for leasing.

Other property categories saw a 3.1% growth in the number of distressed hotels, which now total 364 establishments with 62,666 rooms. With 28.3% of the total properties with CMBS loans in special servicing, retail properties once more made up the majority of those properties. The number of properties increased by 1.6% in August to 643 properties. Offices made up 26.9% of the total, followed by multifamily at 17.8%, hotels at 16%, industrial and flexible buildings at 6.4%, and offices again at 26.9%.


Reduction in Loan Amount for Twin Chicago Skyscrapers: The CMBS contract GS 2015-GC34 has recently had many categories reduced by Fitch Ratings, principally as a result of significantly increased forecasts of losses. This downgrade is particularly noteworthy since it affects the deal's largest credit, a $247 million obligation tied to Chicago's Illinois Center. According to information available, this property consists of two contiguous 32-story office towers with a combined square footage of 2.2 million.

Notably, the master loan servicer, Wells Fargo, has learned that the primary tenant of this building, the U.S. Department of Health & Human Services, intends to let its lease expire in November as part of its plans to move to government-owned facilities. The second-largest tenant, Bankers Life and Casualty, reportedly left the building last month when its lease came to an end and moved to an adjacent office building. As a result, it is anticipated that these departures will lower the property's occupancy rate to about 48%.

Fitch Ratings said that there is a 100% chance of default, citing refinancing-related worries.

The borrower has hired the architectural firm Solomon Cordwell Buenz to develop plans for a new conference center with a tenant lounge in order to increase leasing activity and maintain competitiveness in the market. Additionally, as stated in loan notes from the team, there may be improvements in the works, such as rooftop amenities and improvements to the external plaza.


The 369-room Margaritaville Hollywood Beach Resort in Hollywood, Florida has been successfully refinanced by Pebblebrook Hotel Trust, with headquarters in Bethesda, Maryland.

The enduring song by the late musician Jimmy Buffett serves as the foundation for the Margaritaville resorts. Buffett was the founder and chairman of Margaritaville Inc., the company running various hotels across the country, and he passed away earlier this month.

In this refinancing, a $140 million secured loan with a three-year initial term and two one-year extension options was used. The new financing played a key role in paying down a $161.5 million CMBS debt on the property that was due to mature in May. The corporation used its cash reserves to pay back the preceding loan's remaining balance of $21.5 million. In order to guarantee a fixed interest rate of 7% for the whole term of the new loan, Pebblebrook additionally carried out interest rate swaps.

Following the Margaritaville Hollywood Beach property's successful refinancing, Pebblebrook was able to attain an effective weighted average interest rate of roughly 4.3% for all of its outstanding debt and convertible notes. 78% of this debt has a fixed interest rate, while the remaining 22% has a fluctuating rate.

Jimmy Buffett had a significant impact on Margaritaville Resorts. He helped with the creation of additional resorts, the layout of amenities, the choice of food and drink options, and even the live music venues that were located inside the resorts.





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