CMBS Stumble

August 3rd, 2017 9:41 am | by John Jansen |

Via Bloomberg:

Grocery CMBS Stumble Suggests Repricing After Amazon-Whole Foods
2017-08-03 11:56:49.192 GMT

By Adam Tempkin
(Bloomberg) — Investors gained concessions on the first
commercial mortgage bond backed by grocery-anchored centers
since Amazon announced it was buying Whole Foods Market,
suggesting a repricing of CMBS risk after that transformational
* Spreads on the bond, sold by Madison International Realty and
the REIT DDR Corp., widened considerably from initial guidance
* “Amazon buying Whole Foods has certainly brought grocery-
anchored centers into focus from a longer-term viability
standpoint,” Principal Global investors wrote in a 2Q CMBS
market review
** In addition to pressure on the sector from Amazon, foreign
entrants Aldi and Lidl are making a push to increase their
footprints in the U.S., adding more competition to the grocery

The bond was comprised of several pools, and some may have
fared better than others based on the strength of the loans
backing them. The A and B pools, for example, had significant
spread widening at pricing versus initial guidance, while pool C
* Pool C was comprised of centers anchored by Publix Super
Markets that are performing very well and hold little rollover
risk on the leases, according to presale reports from
Morningstar and S&P
* Some of the stores in Pools A and B were slightly weaker,
according to Morningstar presale, and therefore more likely to
face renewal risk in a normal scenario
** Pool A roster included Publix, Kohl’s, Ross Dress for Less,
and Bealls; some of the centers are in secondary or tertiary
*** Scheduled Publix rollover was a big concern of Morningstar;
even more concerning, sales for three Publix stores were below
the company’s national chain average of $637 per square foot
*** “The Publix Supermarket at Skyview Plaza in Orlando,
Florida, is considered to be in a primary market, but sales are
$310 per square foot, which is low for a grocery anchor”
** In Pool B (comprised mostly of power centers, large outdoor
shopping malls with “big box” stores), both junior-anchor and
in-line sales for certain properties have “decreased since
2013,” Morningstar says, which may mean decreased foot traffic
*** Properties in Pool B include Kohl’s and Bed Bath and Beyond,
which both face challenging traffic patterns
* Loans across the three pools underlying the bond weren’t
cross-collateralized or cross-defaulted, meaning they are all
separate and have distinct collateral, although there may be
some common management of properties
* Citigroup and Morgan Stanley were co-leads on the deal, CGCMT
2017-MDRC. A spokesman for Citigroup had no comment. Morgan
Stanley did not respond to requests for comment
* NOTE: Grocery stocks stumbled after the purchase was announced
on June 16

To contact the reporter on this story:
Adam Tempkin in New York at
To contact the editors responsible for this story:
Christopher DeReza at
Adam Tempkin

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