Special servicers of commercial mortgage-backed securities (CMBS) are using online auction services to dispose of real-estate owned (REO) assets—including defaulted mortgage notes—more often, apparently benefiting from the wider pool of buyers and the strong financing markets, according to a recent look at the sector by FitchRatings.
Real-estate owned assets sold in 2021 achieved 109% of the most recent appraised value, on average, compared with the 97% that the sales achieved, in 2020, according to Fitch’s findings from the snapshot, which compared just the two years, according to James Bauer, director of CMBS research at Fitch. The snapshot looked at activities from the industry’s three most active CMBS special servicers, which sold 125 commercial real estate assets through online auctions.
"The success special servicers are achieving reflects both the wider pool of buyers who participate in online auctions as well as the strong financing markets," Bauer said.
The online auctions, which have emerged as a popular method of disposing of REO assets, which accounted for 89% of the total assets sold on the exchanges. Retail properties were the most prevalent property types sold, representing 41% of all sales. Offices followed, with 26%, and then lodging, with 23% of sales.
On average, REO sales proceeds were 107% of the most recent appraisal. Lodging saw some of the best auction proceeds results, taking 102% of the most recent appraisal, according to Fitch’s snapshot. This was a reflection of daily rate resets, and a faster recovery in certain markets, particularly the limited service/extended stay segments, Fitch said.
When taking the reserve price into consideration, which is the lowest price a seller would accept, sales proceeds were 124% of reserve prices on average. By that measure, the sector that saw the best results were office REOs, selling for 135% of reserve prices, followed by lodging, which took 128% of reserve prices. Retail prices came in at 116%.
Defaulted mortgage notes were a small subset of the total assets, representing 11% of the assets sold through the auction platforms, by count, Bauer said. On average, sale proceeds for defaulted mortgage notes achieved 108% of the reserve price.
