A $700 Million CMBS Portfolio Is On the Brink as Malls Collapse
The bond’s performance shows how rapidly the pandemic is deepening losses in a sector.
September 21, 2020 | Bloomberg
(Bloomberg) — Bond investors who wagered on a group of malls owned by Barry Sternlicht’s Starwood Capital Group are starting to take losses after the Covid-19 pandemic shuttered stores and wiped out emergency cash reserves that had been keeping interest payments flowing.
The commercial-property bond, known as Starwood Retail Property Trust 2014-STAR, is backed by an almost $700 million defaulted loan. It’s cutting interest payouts to investors for a second time, after a reserve account dried up in June and a sharply lower property valuation led to the servicer holding back some funds.
The bond’s performance shows how rapidly the pandemic is deepening losses in a sector that was already getting crushed by online shopping. Even the part of the bond deal that was once rated AAA — meaning bond raters saw virtually no risk of taking losses just two months ago — have now been cut deep into junk territory.
