Some $8.9 billion of loans packaged into commercial mortgage-backed securities since the financial crisis are supported by Houston-area offices, malls and hotels, Morgan Stanley analyst Richard Hill said in a note Monday. And, across Texas, almost $30 billion of these loans have exposure to official disaster areas, according to Trepp, a specialist firm that tracks such debt.
Harvey, which has already broken the nation’s rainfall record for a single storm, couldn’t come at a worse time for the epicenter of the U.S. oil industry. A three-year slump in energy prices that’s seen oil average $49 per barrel this year has sent Houston office vacancies soaring and propelled some loans tied to the region’s property on to credit graders’ watch lists.
“The area in general has been on everyone’s radar,” according to Kin Lee, a money manager at Angel Oak Capital Advisors, which manages $7 billion.
While insurance policies historically shield properties from major disaster-related losses, secured debt may now require a closer look.
Commercial mortgage-backed bonds tied to Houston-area buildings have an average 3.5% exposure to the city, but that climbs as high as 19.2% for some notes, according to Morgan Stanley.
Before the storm, cutbacks at energy companies and a glut of new buildings were already taking their toll on Houston.
More than 19% of office space stood empty in the three months through June, up from 14% just three years ago, according to Reis Inc., a real estate research firm that sees nationwide vacancies at 16%. About 11 million square feet of space is available to sublease in the city, the most since at least 1998, according to CBRE Group Inc.