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Securian Financial

Commercial Mortgage Loans COVID-19 Update

The good news is that the Securian AM Commercial Mortgage Loan (CML) Team entered 2020 with an excellent portfolio of commercial mortgages.

Commercial Mortgage Loan Profile

 

Weighted Average Loan to Value

43%

Weighted Average Debt Service Coverage

2.5X

CM 1 Rating

Over 90%

Highly diversified by geography and property type

 

20+ year track record of excellence

 

Requests for relief from our borrowers have begun. Last week we were informed by several servicers that both Hotel and Retail sponsors were looking for relief. We expect the requests for relief to accelerate, and we are preparing to manage the flow of requests.

First order of magnitude:  Hotels/Hospitality 

A month ago, hotels were running 70% - 90% occupancy, across all segments. Today, occupancy is 10% -20%. We expect to see hotels close down completely across the country, and no segment is immune, as the expense in staffing and utilities won’t be covered by the cash on hand.

Securian Financial has 24 hotel loans in our overall portfolio totaling approximately $170M (3.0X Debt Service Coverage (DSC), 40% Loan to Value (LTV). We have placed all of them on our Watch List. Similarly, ratings agencies have done the same (negative watch) for many rated single Borrower hotel deals.

We have offered four months of interest-only payments to all of them beginning with the May 1st payment. This means Securian Financial would offer to defer (not forgive) receiving approximately $2M in principal on behalf of all loan owners/participants (as is permitted by the servicing agreements we have in place). The principal amount deferred for clients who participate in our mortgage loan programs would be much less and depends on which loans the particular client has ownership in, and the percentage of ownership.

We think borrowers will find our offer attractive, as business and leisure travel will rebound to some extent eventually. No one is going to want to lose their asset, and it is expensive to fight a lender.

Second order magnitude: Retail

We have greater exposure to retail and have also offered four months of interest-only payments to a majority of borrowers in this sector beginning with the May 1st payment. How quickly the ‘all clear’ flag is raised will be a big factor in how bad things get. We have always been conservative in our approach, so unless we have centers heavily weighted to restaurants or other businesses subject to closures, cash flow should hold up.

I am less concerned with Office and Industrial/Warehouse, assuming the lock down is not still here come June. Multi-family is a bit of a wildcard. We have favored ‘work force’ housing which tends to perform better during a recession, but depending on the tenant’s work status, there may be stress. If landlords are banned from evicting tenants who can’t pay (which has occurred in many states already), you can be sure we will be asked to give some relief.  Should the Federal government or its agencies ban foreclosures on single family, and that includes multi-family, then we are in uncharted territory.

The good news

This isn’t the team’s first rodeo.  We have five business professionals with relevant workout experience. The rest of the team is smart and hard working. We have the right internal staff (Business and Legal Team) to deal with whatever comes our way and will assess the need for additional resources on an ongoing basis.

I am looking at a new business title, that of a Bridge Builder. As a portfolio lender, we have levers to pull, and we just need to use those to bridge us over the next coming months.

“Securian Financial" includes Securian Financial Group owned companies including Minnesota Life Insurance Company, Securian Life Insurance Company, and Securian Asset Management

Loan participations are not securities.  The purchase of an ownership percentage in a commercial mortgage loan described herein is a purchase of a portion of a commercial mortgage loan and is a sale transaction between Minnesota Life Insurance Company (as lender) and the purchaser. Securian Asset Management, Inc. (“Securian AM”), an affiliate of Minnesota Life, analyzes the property and the loan terms to determine whether the loan is suitable for Minnesota Life Insurance Company only. Neither Securian AM nor Minnesota Life Insurance Company make any representations or warranties about the underwriting process to the purchaser. Securian AM is a registered investment adviser but does not act as such in performing mortgage loan underwriting and servicing and therefore does not provide investment advisory services to any purchaser in its commercial mortgage loan sale programs.

It should not be assumed that loans were or will be profitable, or that such production will continue on the same terms due to changing market conditions. Lending involves many inherent risks, including the potential loss of the entire loan.

Securian Asset Management, Inc. is a subsidiary of Securian Financial Group, Inc.

This material may not be reproduced or distributed without the written permission of Securian Asset Management, Inc.

For Institutional Investment Use Only.

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