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September 19, 2017

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Nevada ranks third in rate of delinquent commercial loans

Moody’s says situation could get worse before getting better

Image

Steve Marcus / File photo

A view of the Village Square shopping center at Sahara Avenue and Fort Apache Road in 2008.

The recession continues to pound Nevada's commercial real estate industry, with the state ranking third in a new report on delinquencies involving mortgage backed securities.

Moody's Investors Service reported Tuesday that the delinquency rate on such loans nationwide hit 3.64 percent in September, up from just 0.54 percent one year ago.

Arizona, Michigan and Nevada led the nation with delinquency rates in September of 9.32 percent, 9.29 percent and 9.14 percent, respectively, Moody's said.

"After tapering off for two months, the delinquency tracker appears to have resumed an upward trend as expected," Moody's Managing Director Nick Levidy said in a statement. "The delinquency rate is likely to continue moving higher over the next several months as troubles compound in the commercial real estate sector."

The report is in line with third-quarter numbers released Oct. 1 for Southern Nevada by Colliers International--Las Vegas reflecting the deepest local recession in memory:

--Industrial vacancy hit 13.3 percent, a 0.9-point (or 7.5 percent) increase from one quarter ago, and a 3.4-point (or 34.7 percent) increase from one year ago

--Office vacancy climbed to 22 percent, a 0.2-point (or 0.8 percent) increase from one quarter ago, and a 4-point (or 22.2 percent) increase from one year ago.

--Retail vacancy reached 8.6 percent, a 0.5-point (or 5.8 percent) increase from one quarter ago, and a 3-point (or 52.8 percent) increase from one year ago.

Illustrating the problem locally, loans backing three more developments in Las Vegas were moved by Fitch Ratings into the troubled category in recent weeks.

Debt-rating companies such as Fitch, Moody's and Standard & Poor's monitor commercial and multi-family residential loans that have been collateralized and sold as securities on Wall Street.

In recent weeks Fitch reported on issues with these loans:

--Losses are expected on a $59.68 million loan syndicated by Morgan Stanley and backed by the Village Square shopping center and office development at Sahara Avenue and Fort Apache Road, Fitch Ratings said Oct. 2. As of June, occupancy had declined to 63 percent in the office component and to 51 percent of the retail component. The loan for the 238,000-square-foot development was transferred to special servicing in February after the owner, Triple Five Nevada Development Co., indicated it would be unable to meet debt service obligations, Fitch said. "The special servicer continues to follow a dual-track workout, which considers a possible (loan) modification or foreclosure,'' Fitch said. The property was 94.5 percent leased when the loan was issued in 2007, records show.

Also commenting on the Village Square loan was Dominion Bond Rating Service, which on Oct. 7 said a March appraisal valued the property at $38.5 million, down 48 percent in two years. "DBRS is assuming that a significant principal loss will be incurred,'' Dominion said in its report.

Real Capital Analytics earlier reported Triple Five had defaulted on a $27.6 million loan for its planned Great Mall of Las Vegas, which has been shelved because of the recession.

--Losses are also expected on a $15.54 million loan syndicated by Citigroup in 2006 and backed by the 116,000-square-foot Desert Inn Office Center, on Desert Inn Road east of Eastern Avenue. "The property has lost several tenants over the last two years and the vacant space has not been re-leased,'' Fitch said in its report Oct. 2.

With occupancy dipping to 69 percent at year-end, the loan was transferred to special servicing in March 2009 and the special servicer is pursuing foreclosure, Fitch said.

The property is owned by Western America Equities LLC of Issaquah, Wash.

Officials with Triple Five and Western America could not be reached for comment Wednesday on the status of their projects.

--Fitch Ratings on Sept. 30 placed several Bear Stearns real-estate backed securities on "rating watch negative'' after, according to Fitch, a loan for the downtown World Market Center Las Vegas furniture industry showcase was placed into special servicing in September, along with five unrelated smaller loans.

Loans are typically placed into special servicing when they are in default or headed toward default -- but the World Market Center said Wednesday it's not in default on its debt.

Records indicate the property received a $225 million refinancing loan in 2005. Fitch said the special servicer has reported occupancy fell to 88 percent at year-end 2008 -- and that the center's ability to service its debt has declined.

The Market Center on Wednesday declined to discuss current occupancy statistics for competitive reasons.

"World Market Center's debt is part of a much larger pool of collateralized mortgage backed securities (CMBS) that are traded in secondary markets amongst investors and bond traders. CMBS pools are frequently rated by the rating agencies based on their technical analysis of the pool as a whole, and such actions have no impact on World Market Center, nor does it affect Las Vegas Market and its operations. World Market Center's debt is not delinquent," Bob Maricich, chief |executive of World Market Center Las Vegas, said in a statement.

World Market Center now stands at more than 5 million square feet of space across three buildings, and says it exceeds the size of any trade merchandise mart in the United States. Under build-out plans, the complex would be valued at $3 billion with 12 million square feet and eight buildings, which would make it the largest trade show complex in the world.

The World Market Center was developed by New York-based Related Companies and partners Shawn Samson and Jack Kashani.

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