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What Would Be the Fallout of J.C. Penney Store Closings for the CMBS Market?

As J.C. Penney gets hit with more and more bad news, Chicago-based research firm Morningstar has published a report on the potential impact of J.C. Penney store closings on existing CMBS loans.

Morningstar researchers estimate that there are approximately 262 unpaid CMBS loans that are secured by properties where J.C. Penney is one of the three anchor tenants. The department store chain occupies 100 percent of GLA at four of the properties on the list, 50 percent of GLA at 13 properties and approximately 26 percent of GLA at 95 properties.

What’s more, 98 of the CMBS loans that are secured by properties occupied by J.C. Penney stores are already on Morningstar’s watch list, including 38 loans that are specially-serviced. In addition, 13 of the properties involved in the securitizations are less than 80 percent occupied today and 26 properties expect J.C. Penney lease expirations this year. Morningstar projects that 20 of the latter properties will experience occupancy of less than 80 percent if J.C. Penney decides not to renew its leases.

“Although its continued financial troubles have yet to prompt the company to announce a new round of store closures, we do have concerns about the ongoing viability of the business operations,” Morningstar’s report reads. “As an example of such, a recent report suggest that the J.C. Penney located at the Palm Beach Mall in Palm Beach, Fla. is set to close on May 1, 2013. The mall secures a specially-serviced loan in JPC03PM1. The $44.1 million loan has been in special servicing since April 2009, when occupancy declined to 69 percent and former owner Simon Properties walked away from the loan. A loss of up to $20 million is expected.”

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