KBRA Releases Research - CMBS Office Exposure to Large Layoffs

KBRA releases research on U.S. commercial mortgage-backed security (CMBS) office exposure to recent white-collar layoffs as announced by large companies. The news of layoffs is unwelcome for the property type segment, which is experiencing weakening demand owing to remote-working arrangements as well as increasingly cost-conscious companies. KBRA focused on companies announcing layoffs of at least 1,000 employees from 2022 through mid-March 2023 (layoff companies) to gauge the exposure. Among the universe of nearly 5,700 office and mixed-use properties in CMBS 2.0 conduit and single asset-single borrower (SASB)/large loan transactions, KBRA identified 266 lease exposures to layoff companies across 245 properties. Together, these leases account for 33.3 million sf, or an average of 29.6% of the respective property square footage. The properties secure $35.4 billion of CMBS loans on an allocated property balance basis.¹ These loans equate to approximately 5.6% of the currently outstanding CMBS 2.0 balance.

Additional findings include:

• KBRA identified CMBS lease exposure to 45 out of 62 layoff companies. These 45 companies had announced combined layoffs of 216,905 employees.
• The analysis reveals that tech, advertising, media, and information (TAMI) industries represent a meaningful portion of the layoff companies. Large tech companies such as Amazon, Google, Meta, and Microsoft accounted for 18.6 million sf (55.8%) of the exposure.
• The largest exposure was to Amazon, which had 38 leases across 33 properties totaling 7.5 million sf of leased space and collateralizing $3.2 billion of property allocated loan balance.
• The largest single lease exposure is to Warner Bros. Discovery, which leases 100% of the 1.5 million sf of 30 Hudson Yards, securing a $1.4 billion loan collateralizing HY 2019-30HY, which is not rated by KBRA. The related loan is also participated across six conduits.
• Given the heavy TAMI exposure, the San Francisco, Silicon Valley, and Seattle markets represent 15.8 million sf or 47.5% of the overall exposure to layoff companies.
• Among the conduits and large loan transactions with the highest concentrations, many are collateralized by a participation in the same loan that has a high exposure to layoff companies. These deals—BMARK 2020-IG2 and BMARK 2020-IG3—which are both non-KBRA rated, have the highest exposure to layoff companies with over 20% of loan balance exposed to them. There are several SASB transactions that involve single-tenant exposures to layoff companies, HY 2019-30HY being the largest.

KBRA’s research reflects that the overall exposure, though large in terms of total sf, may not be a significant portion of CMBS.

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

¹ For the purposes of this report, unless otherwise stated, the property allocated loan balances will be used to represent loan balances with exposure to layoff companies. For example, for a loan secured by multiple properties, if only one property has a layoff company lease, the loan balance will be expressed as the allocated balance for that property and not the entire portfolio loan balance.

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