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Commercial Department: Q&A: Mary MacNeill, Fitch Ratings: June 2017


Q&A: Mary MacNeill, Fitch Ratings

The CMBS market is adjusting to the times

Commercial mortgage-backed securities (CMBS) are in a constant state of flux, which is why brokers and investors look to credit-data research to help provide answers. From Miami to Minneapolis and points in between, projects can find traction or slip away depending on how the financial math pencils out. Mary MacNeill, managing director of Fitch Ratings’ U.S. CMBS group, spoke with Scotsman Guide about trends and expectations within the CMBS market.

As major retailers continue to close stores or file for bankruptcy protection, what is the effect on the CMBS market?

We’ve been monitoring retail for a while. Probably the most troubling aspect of retail is the malls, especially “B” malls. [Losing] a smaller retailer in those malls is not as troubling, but if they are to lose a larger [store] … then you’ll have more of the smaller inline retailers going out [of business]. Once a mall goes bad, it goes bad pretty quickly, so we have been taking a very conservative look at many of the malls in our portfolio, especially when they’re providing sales trends that are trending down.

I definitely think that store closings will continue, especially with online sales continuing to take up a larger percentage of shoppers, consumers. … There are certainly a lot of malls that are not going to survive and those are the ones, like I said, where you have sales trends that are trending lower [or] you have larger anchors who are leaving.

Beyond retail, what is the big picture for CMBS on things like small office, large office, industrial and medical properties?

We don’t see that much medical — that’s a pretty small percentage of CMBS. Industrial also is a smaller footprint for CMBS, although they’re kind of in pockets. Although we consider the sector stable, there’s kind of pockets of concern in offices — the tech-heavy markets like Austin, [Texas], Silicon Valley [in California], Seattle. And then there’s obviously the energy markets that have been struggling for a while.

… Suburban office [space] has always kind of been a concern, especially some of the office parks or single-tenant office space. The other trend in office is really downsizing floor space, better utilization of space. Even though [companies] may have more employees, they’re downsizing the footprint that they use for employees.

CMBS delinquency rates continue to climb as loans from 2006 and 2007 mature. Is it easy or difficult to refinance these loans?

Obviously, a lot has already defaulted in the ‘07 vintage (year of origination). We have been looking at what we call the “wall of maturities,” which has certainly come down quite a bit. … Currently, I think there’s about $38 billion to still refinance in 2017. The majority of that comes from the ‘07 vintage. That number has come down quite a bit.

We do expect, though, that our delinquency index …. [will] climb to about 5.25 to 5.75 by the end of the year. That’s not really unexpected because there are a lot of overleveraged loans in the ‘07 vintage that will likely default at maturity. It might just take them a little bit longer to come to refinance. Some of them require a little more equity put in, maybe a mezzanine loan in order to refinance and pay off in full. And we have seen a number of loans pay off in full, where we had expected that they would have difficulty refinancing.

What do you anticipate for secondary-market performance if deregulation happens under the Trump administration?

First of all, I think deregulation will take a very long time. I think there’s probably a lot of other competing agendas. … I do believe, though, that the bigger banks, because they’re used to regulations, it’s probably not as much of an issue for them. The smaller banks, with less regulation, it might be easier for them to get back in the game [in the wake of deregulation]. The other thing is, right now, CMBS as a percentage of overall commercial real estate is a smaller share than it has been in the past. So deregulation might help CMBS to make up a greater percentage of overall commercial real estate, back to where it was.

Mary MacNeill is managing director of Fitch Ratings’ U.S. commercial mortgage-backed securities (CMBS) group. She has overseen performance analytics for outstanding CMBS transactions totaling more than $350 billion since 1998. Her responsibilities include maintaining and updating rating actions as well as publication of related research. MacNeill earned a bachelor’s degree in business administration with a concentration in management from the College of Saint Rose in New York.


Neil Pierson is editor in chief of Scotsman Guide Media. Reach him at or (800) 297-6061.

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