But bond dealers in the notorious niche The $ 600 billion commercial mortgage-backed securities market (CMBS) now offers more opportunities than ever to leverage big data when betting on the recovery or decline of certain hotel properties or a cluster of shopping malls.
As with so many things lately, the pandemic has been a catalyst.
A year ago, Empirasign Strategies, a New York City-based platform that tracks trade data in more obscure parts of the debt markets, teamed up Geolocation analysis company Advan with the mapping of pedestrian traffic data to specific commercial real estate bond transactions.
“It was late March and everything felt like hell in town,” said Adam Murphy, founder of Empirasign. “You had just announced that the The Javits Center was to be set up as a field hospital. ”
At this point, Murphy began discussions with Advan about licensing its pedestrian data, which has already been used by hedge funds, private equity, and the real estate industries to overlay Empirasign’s bond trading data.
“Everyone thought: is New York coming back?” said Murphy, who commuted to the office several times a week during the pandemic. “I was able to see the pedestrian traffic firsthand, but I could only see it with my own eyes and only for a few blocks.”
Well that about 40% of the US population received at least one vaccination shot of COVID-19, more hotels, retail and office buildings across the country have reopened.
Empirasign’s platform has also been ramped up, linking approximately 65% of all commercial mortgage bonds to data showing how quickly or slowly pedestrian traffic has returned to certain properties, with the goal of reaching 95% by May 1.
“The reason many investors have been patient over the past year is because they believe workers will return to offices and tourists to hotels,” Murphy told MarketWatch. “In this way you can actively monitor the validity of this thesis.”
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Hotel, Leiden shopping center
Take the badly hit hotel sector, where bookings fell overnight last spring and caused them to Real estate bond prices are falling and borrowers who owe billions in debt to hold talks with lenders about possible relief.
In the months since then, foreclosures have begun on some distressed properties, even as pedestrian traffic picks up again. This Empirasign table compared pedestrian traffic in six hotels where loan payments were more than two months overdue.
Pedestrian traffic in severely affected hotels.
Empirasign
The blue line represents pedestrian traffic at JPMCC 2018-PHH, the name for a $ 328.9 million commercial mortgage bond business that helped fund the historic three years ago Palmer House Hilton in ChicagoAccording to Trepp LLC, this is the city’s second largest hotel currently in foreclosure.
Recent Empirasign bond tracking data has pegged junior slices of hotel debt to the dollar, suggesting a low expected recovery value.
Ed Reardon, an analyst for Deutsche Bank, said some green shoots showed in a weekly note, including hotel occupancy, which recently hit a pandemic high of 60%. On the flip side, hotel loans still have the highest crime rate at 19% more than 60 days after maturity on April 21, compared with 7% in retail and 6% overall for all property types.
Aside from hotels, pedestrian traffic has also picked up from lows in several gigantic shopping malls across the country, including the Mall of America in Minnesota. The Wall Street Journal recently detailed the owner’s struggles to keep the mall’s indoor roller coaster open during the pandemic and to keep up to date on the $ 1.4 billion borrowed in the bond market.
Pedestrian traffic in the Mall of America.
Empirasign
“There’s a tremendous amount of data that people have been using for a long time,” said Steve L’Heureux, portfolio manager for Loomis, Sayles & Company
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and global commercial real estate and CMBS strategist. “Some of this is a lot more sophisticated than the average person in the industry might think.”
However, L’Heureux also warned that pedestrian traffic doesn’t necessarily translate into sales and that commercial properties are still dependent on a property’s financials and lending rates
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Cash flows and the tangle of legal contracts between landlords and tenants, which are often renegotiated in times of stress, and between borrowers and lenders.
“That kind of information is harder to come by,” he said. “I find the new stuff interesting. And it’s a hot topic. “
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