WS798: The Impact of COVID on the CMBS market with Jyoti Yadav

The world of real estate is multi-faceted, and deciding where to invest can be a complicated process. Jyoti Yadav, an engineer turned research analyst, has a wealth of knowledge in this field, and we are very grateful that she has chosen to share some of it with us on the show today. Jyoti explains in detail the issues that are currently being experienced in the retail and hotel spaces and why the industrial space is booming. 

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This is largely (though not entirely) due to the COVID-19 pandemic, which has dramatically altered our lifestyles and, in turn, the entire real estate sector. It has catalyzed changes at a dramatically fast rate in comparison to previous financial crises, and there are still a lot of unknowns, so a deep understanding of the data is very useful in terms of choosing where to put your money. If you are looking to gain an understanding of what is going on in the world of real estate or you need some advice on where to invest, this episode is essential listening!

Key Points From This Episode:

  • Jyoti talks us through what Commercial Mortgage-Backed Securities (CMBS) are and how it works. 
  • The importance of CMBS in the commercial real estate (CRE) space. 
  • The difference between the COVID-19 financial crisis and previous financial crises.
  • Some of the ways in which COVID-19 has changed our lives. 
  • How COVID-19 has created distrust in certain property types. 
  • An explanation of delinquency rate and special closing rate. 
  • Jyoti offers advice on where to find data relating to CMBS.
  • Currently, the hotel and retail spaces are particularly struggling, while the industrial space is thriving.
  • Jyoti offers her in-depth opinion on where and where not to invest, and why. 
  • How Jyoti’s engineering degree has helped her excel in her career. 
  • The way working from home is impacting the real estate sector. 

[bctt tweet=”The issue that retail is having is not because of just this crisis, it was a property type which we’ve seen in distress for a long time. — Jyoti Yadav” username=”whitney_sewell”]

Links Mentioned in Today’s Episode:

Jyoti Yadav email

Jyoti Yadav on LinkedIn



American Dream Mall


Financial Times

Wall Street Journal


Fannie Mae

Freddie Mac

Ginnie Mae

About Jyoti Yadav

Jyoti Yadav, Research Analyst at Trepp, is a leading contributor to the firm’s CMBS and CRE research and analytics. She provides key insights to industry media and other external audiences, including as a guest on multiple podcasts. She also leads Trepp’s research in the corporate CLO space, is involved in consulting engagements with clients as a key member of the Trepp Advisory team, and is working towards incorporating ESG metrics in Trepp’s product line. Jyoti has a Master’s degree from Johns Hopkins University and a Bachelor’s from ICT Mumbai.

Full Transcript


[0:00:00.0] ANNOUNCER: Welcome to the Real Estate Syndication Show. Whether you are a seasoned investor or building a new real estate business, this is the show for you. Whitney Sewell talks to top experts in the business. Our goal is to help you master real estate syndication. 

And now your host, Whitney Sewell.


[0:00:24.4] WS: This is your daily Real Estate Syndication Show. I’m your host Whitney Sewell. Today, our guest is Jyoti Yadav, thanks for being on the show Jyoti.

[0:00:32.4] JY: Of course, thanks for having me Whitney.

[0:00:34.4] WS: Jyoti is a research analyst at Trepp, is a leading contributor to the firm’s CMBS and CRE research and analytics. She provides key insights to industry media and other external audiences, including as a guest on multiple podcasts. Today, she will be discussing the state of the CMBS market and how it has performed since the coronavirus pandemic hit in the US.

So such a great topic and very timely, Jyoti, I’m grateful to have you on the show and just being able to provide your expertise, you’re a perfect guest. I know many of the listeners are going to be very interested in your outlook and just the knowledge that you have from all the data and everything that you have. But get us started a little bit, maybe a little more about who you are Jyoti and what you do. But then, let’s dive in to initially, quickly, what is CMBS and what does that mean?

For the listener that may be new in this market and haven’t heard that acronym before so they can get caught up a little bit, why is that important to people in the commercial real estate space? And then let’s dive in to just the current CMBS market, just the impacts of COVID and things like that.

[0:01:40.5] JY: Right, right thank you Whitney. So everyone, my name is Jyoti Yadav, I am a research analyst at Trepp and I mean, let’s get right into it. CMBS essentially stands for commercial mortgage-backed securities. It’s one of the financing vehicles in the space, CRE space and it accounts for – I mean, it changes over time but it accounts to roughly 15 to 20% of the universe. So now, how CMBS works is, banks would make the loans to commercially real estate property owners, they will pool a bunch of those CRE loans together and they would issue securities based on these underlying collateral and that would be similar to investors.

Now, why is it really relevant in the CRE space? It’s because, all of these loans, thousands and thousands of those are commercial real estate loans, located all across America and some in Europe that we also track. CMBS is one of the financing that’s kind of, the loans are essentially need to be securitized, it has traditional stabilized assets but it’s secondary and tertiary properties located across America. So in our database right now, we have over half a trillion-dollar worth of loans, like the outstanding balance of these loans.

Why it’s important for CRE or people in the CRE universe is because we have humongous amount of data on that. I think it’s like 500 ish data points in every loan, which is updated on a monthly basis. If a borrower is behind payment, we would have that and then we would know that on a monthly basis. If like where their financiers are, we would know that, what they’re occupancy are. 

And another main thing is, those servicer kind of provides on a monthly basis, update on what’s happening with the loan. This is at a granular level, pool it all together for half a trillion-dollar worth of loans. We kind of know what’s happening in every geographic area and also with every property type.

So I kind of, a segue, it turned into like what happened with COVID. Unlike the last financial crisis, which was more of pertaining to a critical part of the universe, this, with you know, banking part in like a more residential mortgage-backed securities and housing market really. This crisis was essentially a supply shock. 

So in March, almost everything stopped, our life is not like how it was back then and what we do on a daily basis has changed, we don’t commute to work. I haven’t taken a vacation in a while; I don’t know about you Whitney. And you know, big fraction of youth population, like you know, the unemployment numbers really shot up.

While they’ve come down now, is having issues making monthly rent payments. Because of that, we have seen specific distrust in certain areas and also, certain property type. While I explain the distrust, I’ll just get into two major metrics that we look at. One is delinquency rate and the other is special closing rate. So delinquency rate essentially, it means that the borrower is more than 30 days behind payment.

And, in June of this year, the delinquency rate was 10.3% and for half a trillion-dollar worth of loans, that’s 50-billion-dollar worth of loans for which the borrower were behind payment and that shocked the market and that is specifically because, in March, that number was just 2%. So it went from 2% to 10% in a period of four months. In the last crisis, that took four years to happen.

[0:05:41.2] WS: Four years?

[0:05:42.1] JY: So you know, we are looking at really – sorry? You were saying something?

[0:05:44.8] WS: You said four years, and it took four months this time.

[0:05:46.7] JY: Yes, exactly. So last time, like you know, you can say that crisis started like 2008, the highest delinquency rate we saw was in 2012. I think July or June 2012, which is 10.34% and this time, we saw in June, which is 10.32% really, really close to the highest we’ve ever seen and I mean, Trepp has been tracking the data from like 1990s when the market started. So, it was a shock for almost everyone in the CMBS space and CRE space but for also us.

The second metric that they track is special closing rate and that essentially means that the loan is having some kind of issues, either financial distress, either like say, if it’s a retail property like a tenant is going to leave it could, I mean, that’s true for office properties and multi-family too. Like you know, tenants are leaving, and big tenants are leaving, like JC Penny filed for bankruptcy.

I think that has billions of dollars’ worth of exposure in CMBS universe. Just you know, based on alls that JC Penny is located on, in. So yeah, so when such kind of distress means that the borrower, that the loan would be transferred from a master servicer to special servicer and that rate is at 10 points, it was that 10.48% last month. Again, that is also a very big spike. I think last time around in the last financial crisis, we saw something like 13% and that also took like years for us to get there.

Whereas this time around, it is like six months period. So, I really like the [defund 0:07:31.0] the CMBS state of the CMBS market based on these two very important metrics, of course there are thousands of other things that we look at and if you look at Trepp research, you talk about all of that all the time. That is really a big number and we are tracking it on a monthly – in fact, on a daily basis of you know, which is the loan that suddenly, you know, like American Dream Mall or Fontainebleau Resort. I mean, these are big loans that I’m talking about. But which other ones that are seen distress.

To give you an example, I think almost – not the most recent research but one of the recent research was talking about which other borrowers, which are willing to just walk away from their property? So, CMBS universe, the borrower are not personally liable, the collateral is only the asset. And, we saw that four-billion-dollar worth of loans, the borrower is just too willing to walk away from the property and they were just like, “You can kick it, sell it or close it, we don’t really care about that.”

And, for the people in CRE universe who are looking for distressed opportunities here, that that is something you would want to look at, you would want to see which is that mall, which is that hotel that the borrower just doesn’t care about anymore, just want to give it back. Those are the big metrics and I know I’ve talked for a long time so I’ll let you ask questions.

[0:08:58.3] WS: No, that’s awesome. I want to let you discuss those things because I think that, yeah, it’s hard to know sometimes what metrics we should be focused on and even you know, since we’re not in your shoes and have access to so much of that data. Where should we look to find some data like that, that we should be tracking. Any suggestions on where we could find some data like that?

[0:09:18.2] JY: Well, [show an answer to Trepp? 0:09:19.3] No but like – so Trepp, just from my perspective on a monthly basis, we put out research of the numbers of that quarter is publicly available, you can go to our website and get those numbers and get some of our research, which is publicly available. So any financial, any publications that we’ll talk about CMBS universe, you would see our data coded there. Again, I know I’m tying back to Trepp but it is the thing, like we the most trusted service in the CMBS universe and let it be Financial Times, Wall Street Journal, even Bloomberg. Every time anyone would talk about CMBS and it was that will be our data.

That said, another thing that I would like to point out and maybe we can get into this later is you want to point out that there are like two property types that’s just seeing a lot of issue right now and that is hotels and retail. So, hotels have seen a delinquency rate of I think much over 20%. Maybe I can put up, pull out the latest number. Yeah, it’s around 20% which is more than 20-billion-dollar worth of loans and retail is approximately at 18%, which is approximately the same mark, like 17-ish.

So, for distress buyers out there, or for like, anyone in the CRE space, you know, let’s say, a broker who is looking at you know, where is the availability, like who is looking at leasing new tenants? And there is a property, which will come on the market and will be foreclosed and be sold at a discount. So those are the areas where a lot of people are working on, retail and hotel.

[0:11:02.0] WS: Any other changes or things that you see happening in the market, like, since COVID where you talked about what happened in four months, you know, what about since then and what do you see moving forward?

[0:11:13.2] JY: Right, one thing we have noticed is right after March, the number of [deal set 0:11:18.4] per issue, essentially, a lot of deals, just like, there was no new issuance of deals. So, every time a deal is issued, that means more and more loans, [to secure that in the universe 0:11:26.7].

When there were no new deals issued, that means at that point of time that it was difficult to get financing for a lot of assets. Now, since then, they have seen some deals being issued but you would see that most of these deals do not include retail, retail and hotel. I mean, some of the deals would include retail properties across America, maybe like you know, like a class-A mall. That could be a part of it but there is difficulty in getting financing for these two property types.

Now, the second thing I would notice, and this is something that you know, we almost were kind of ahead of the curve in getting to it is that industrial property type, right after March, like, it did not see any impact. In fact, the delinquency rate, which is more than 30 days behind payment rate, actually, reduced for industrial, since March. So, what that tells us is that while retail property owners are having difficulty making the payments, more and more warehouse and distribution centers are being set up. And you see articles about that all the time now, you know? Amazon is renting out more, renting out or buying more distribution space and warehouse space.

So that is a trend that we noticed then. Another thing that we are looking at is office space and trying to see. Because everyone is working from home, of course. Now we’re trying to figure out if that will have – that has any short-term impact, we haven’t seen much right now because offices are like 10-year leases and we have seen an increase in office leasing activity just because of the fact that people are doing short term leases and there is more for buyers market right now because of you know, people who own an office property and they just want to make sure that their office was leased out. There are not a lot of people looking out for an office space right now.

Long term, we are carefully looking at what the market and how it will perform and how it’s doing. Another thing that is very important and that a lot of our clients are looking at, is that, I told you about the monthly updates that we get on each and every loan. What is happening in hotel and retail space that – which doesn’t happen generally in the CMBS space at all is that, forbearance agreements are being granted to property owners, mainly hotel and retail. 

They are able to use their reserve balance for let’s say like six months, eight months, it’s very dependent on who we’re talking about. But they’re able to use a resolve balance for some time and once that forbearance agreement expire, they’re supposed to make their monthly payment, plus something to make up whatever they haven’t paid in some time and make up their resolve balance. 

What that really means is, this recovery is going to have a long pay out, because of the fact that once these forbearance agreements expire, there would be some hotel owners who would be like, “I probably cannot make this increased monthly payment,” and that would be the time when you would want to talk to that property owner and be like, “Do you want to sell it at a discount to us?” If you want to operate that, of course.

Forbearance agreement has kind of skewed the market, we reach all the way delinquency rate of 10%. Now we have come down to 8 point something, 2% I think, it went 3%. But we might see something in the future. Probably like early next year or mid-next year where we see more distress in the space. Or, the other thing that could happen is, we have a very like, [Nike shoes shape for size, shoe safe 0:15:08.1] recovery and you know, there is nothing to worry about anymore.

So, these are the things we are really keeping in track of and we look on a daily basis to see where we see all of these issues.

[0:15:22.7] WS: Jyoti, with all of these data and knowledge of the markets, I mean, it’s just incredible. Like you said, you know, in every property type, in every geographical area, you know, you all most likely have quite a bit of data and that’s pretty powerful. You know, say for instance right now, you’re the passive investor. What type of asset class are you investing in?

[0:15:42.2] JY: Well, I would definitely think not – well, I will get to my conclusion based on elimination. I would definitely not look at retail. Because, the issue that retail is having is not because of just this crisis, it was a property type which we’ve seen in distress for a long time, just because you know, all of us are ordering on Amazon now. Most of the stuff, you know, all getting our stuff delivered online.

So, unless it’s a class-A asset, that is something I’m probably going to shy away from. Let’s move to hotels. Hotels right now, if I am a very good operator, if I know what I am doing, I would look at hotels and be like, “Okay, this hotel in Hawaii would probably see revenues come back up as soon as lockdowns are over” right? You know, everyone wants to get out of their house.

I probably will be the first one. So, it is very dependent on where the hotel is located and what sort of revenues they had pre-crisis. Because, in our database, you can see what the occupancy rate has been and also, what debts service coverage ratio. Like if this is a loan, this is a property value, how much can they cover on a regular basis?

Some hotels, actually, Las Vegas have a debt service coverage issue, all the way up to 3X. So if you want an operator in that space or if I’m an operator in that space, I would look at each of these hotels in that area and see, you know, whichever high debt service coverage issue, which is seeing a rebound in revenues already and which has a higher occupancy rate and what the monthly update is because sometimes the high deed of sale hotel would probably you know, be like, “Okay, we are going to give it back to the bank and we don’t care about it,” so we want to look at each of these things. 

Okay, so I’ve talked about those two types. Let’s get to office. Now, again, if it’s a Midtown Manhattan office, I would look at it and be like, “You know, maybe New York City, it will always end up being the center.” So, well, I’m based in New York City so I say that, center of the financial universe but you know, I would look at those and again, you always want to look at each and every property and details of each and every property and how it’s operating but just like overall trend you would look at that and be like, “Probably this is going to perform than a sub owned space and very far away or like outskirts of Virginia”, or maybe I’m wrong. Maybe Virginia will get back too. 

So multi-family, that is an interesting part because the reason why I say that is because we have seen an increase in interest in single family rental space in our database. If people start getting used to this work from home lifestyle, they might want – a lot of people are thinking about just sticking to suburban spaces, probably buying a home or probably renting out a single family rental space there.

That is also something that I would look at very specifically of you know, how – again, going back to the same fundamentals, how the revenues have been, what are the expenses, what are the occupancy? I think there was one in a property in Houston that we recently talked about which saw a reduction in occupancy. So, you definitely want to look at all of that. I would kind of bet my money on industrial. I know I took a long way to get there.

[0:19:14.9] WS: That’s okay, it’s a great just detailed explanation. No, I’m grateful, go right ahead.

[0:19:19.9] JY: Yes, I would bet my money on industrial right now and even in the long term, just because of how or what our preference is right now in terms of you know, how we shop, which is a very important part of it. The second thing that I would also look at is self-storage. It is a smaller property type in our universe. I think we have approximately 16-billion-dollar worth of loans in self-storage. But self-storage has seen like 0.14. I’m probably a couple of basis points here and there, that’s the delinquency rate in self-storage.

So, we talked about it recently in one of our research article is that there are a lot of big players moving the self-storage universe, along with the multiple, like smaller or property owners but that is a sector which is seeing a lot of interest and it has seen increased issuance in the CMBS universe. Did I miss on some topic that which you want to talk about?

[0:20:18.1] WS: No, that was great. I appreciate you going right through that. I feel like a lot of the listeners are probably going to be mostly focused on multi-family while we have many that are in you know, numerous asset classes. Anything else you see, you know, just specific to multi-family, trends that you see, or things that you expect, say six months to a year from now?

[0:20:35.3] JY: Right, let me preface that by saying that our data, when I said half a trillion-dollar worth of loans, that was essentially the private labels in CMBS universe, like as you must be aware, there is agency like Fannie Mae and Freddie Mac and Ginnie Mae. We have all of that data too but the 500 trillion was just private label.

The agency data is a lot. I mean, just last year, we saw 117-billion-dollar worth of issuance in agency which is only multi-family space. So that is also the data that Trepp has and everyone like, in our database, you can just like you know, going to a map, make your own boundary and see which all properties are there, agency and private label. Just see what their updates are.

Now, going to the trend part, we haven’t seen a high delinquency rate yet. In fact, to be honest, I wouldn’t say even high, it is approximately, let me quickly do a check here. It is approximately a two-ish percent which is significantly low and depending on how – depending on who wins selection, which we don’t know right now and depending on what the next process would be in terms of like rent eviction on moratoriums or you know, stimulus package. 

All of that will change, it is widely believed that there is going to be a stimulus package, just – we don’t know how big but it’s mostly going to happen. So we do expect that they won’t see a lot of issues there but again, this will be very dependent. Like, if you’re looking at multi-family, like looking at an apartment building in downtown Houston or like downtown – I can’t think of an example right now but downtown Houston versus in suburbs, you know, those will operate differently.

You definitely want to really get into the weeds of it and just figure out how that particular property type is operating. But the overall trend, we haven’t seen a lot of issues there.

[0:22:37.5] WS: Nice, Jyoti unfortunately, we are running low on time and we’re going to have to move to just a couple final questions but we’d love to have you back. You know, say, six months from now or you know, in a year from now and you know, and really get your take on what’s happening just from your expertise and research. Quickly, what’s the number one thing that’s contributed to your success?

[0:22:56.9] JY: I would say, it’s my engineering background. I’m a trained engineer, I did my masters and undergrad in the engineering degree and just because [inaudible 0:23:06] education I’ve just been used to looking at a lot, a lot of data and come to precise calculations and I think that background has helped me in every career that I have chosen and that’s what I would say about Trepp as well.

[0:23:19.1] WS: And how do you like to give back?

[0:23:21.3] JY: Yeah, it’s very dependent and I think that I’ve realized that over a few years, my priorities have changed and somehow every like five years, it’s a different thing and I always look for organizations that are working in that particular area and I just make donations there. Most recently, it has been UNICEF but it has changed over a period of time.

I do want to add that I did see how you guys have been really invested in giving back and I do appreciate that, that’s amazing.

[0:23:53.7] WS: Well thank you very much. Jyoti, great show, I’m grateful to have met you and had you on the show, just you being willing to be so transparent, share your expertise just from all the data that you have access to we’re very grateful for your time. Tell the listeners how they can get in touch with you and learn more about you?

[0:24:11.7] JY: Right, so you all can reach out to me at, you all can also reach out to and that is our mailing list for all of my wonderful colleagues and our team. And, we can get back to you on that.


[0:24:32.5] WS: Don’t go yet, thank you for listening to today’s episode. I would love it if you would go to iTunes right now and leave a rating and written review. I want to hear your feedback. It makes a big difference in getting the podcast out there. You can also go to the Real Estate Syndication Show on Facebook so you can connect with me and we can also receive feedback and your questions there that you want me to answer on the show. 

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