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.
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“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.