By Benjamin Bouchet, Structured Finance

Maroon’s demise was the final point in a long, slow decline. Given that no two CMBS transactions are the same, recent events with regard to this transaction will not be harbingers of significant knock-on effects to the rest of the CMBS market.

The fact that Maroon’s secured real estate portfolio was initially appraised at GBP 104.7m at issue but underwent two reassessments within two years of issuance owing to declining rental income that wiped out GBP 35.8m of market value should have been a salutary lesson.

The properties’ low sale price (around GBP 31.5m net after fees) will likely be insufficient to pay the GBP 33.64m outstanding balance (as of April 2024) hence losses at the original AAA level of roughly 4.14% (the GBP 33.6m current balance less GBP 31.5m in net proceeds divided by the initial balance of GBP 50.7m). Losses could be lower, however, as there might be some quarterly net income before the sale is finalised on 15 July.

Valuation divergence

The central issue here is valuation. The three UK shopping centres securing the Maron loan were last valued in January 2020 at GBP 68.9m and there had been no new valuation since then. At the time, that valuation was the equivalent of a blended 10%-12% yield based on reported and projected net operating income.

But given the sharp 4.5 ppt rise in UK interest rates since 2020, the impact of the pandemic on secondary shopping centres combined with the actual deterioration in the properties’ annual net operating income from GBP 8.2m in Jan 2020 to GBP 4.9m in April 2024, it was clear a more accurate valuation would be a fraction of the initial one.

Beyond the wide discrepancy in valuation, there are some other aspects to the events that unfolded around Maroon. It is certainly reasonable to ponder the servicer's decision to accept a lowball bid for the properties at this precise time given that the loan has been in special servicing for four years, there are four years before the legal final maturity of the notes, we are likely at the peak of the monetary cycle and the notes were still receiving interest in full.

Scope has flagged a number securitised loans maturing in 2024 facing very high refinancing risks, noting that 40% of fully-extended securitised loans present high or very high refinancing risks earlier this year. As of June 2024, 43% have been modified and extended, 19% refinanced, 15% remain at a very high to high risk of refinancing and the remainder (24%) medium risk.

Transactions facing very high refinancing risk now include the Viridis ELOC 38 transaction backed by a loan refinancing the Aldgate Tower in London. Five other loans facing a similarly high level of refinancing risk have now been modified and extended by three years: the three loans securitised in Pietra Nera Uno and backed by four Italian retail outlets and shopping centres and the two Deco 2019 Vivaldi securitising loans backed by fashion outlets in northern Italy.

Loans facing high refi risk are those securitised in Taurus 2021-3 DEU (backed by The Squaire, a predominantly office and hotel building in Frankfurt Airport) and the Node loan securitised in Starz 2021-1 (backed by a single residential property in Dublin). Meanwhile, River Green Finance 2020 and Emerald Italy 2019 are in special servicing.