A closer look at River Green and CMBS losses

A French CMBS transaction named River Green – a deal we exited a few years ago at a price in the mid-90s as part of a broader review of our CMBS exposure – has come under renewed scrutiny after a new valuation triggered expectations of principal losses on what were originally AAA rated bonds. Here’s how we got here.

As we wrote a year ago, the commercial real estate (CRE) sector has faced a number of headwinds since 2022 with tighter financing conditions, declining property valuations and weaker rental growth, especially for sectors such as offices, retail and hotels. As a result, we have generally been underweight CMBS for some time. We have seen some sponsors proactively dealing with the “maturity wall” for CRE loans by extending maturities or injecting equity. However, with investors now demanding higher yields, refinancing loans maturing in 2023 and 2024 has become especially challenging for those with higher initial loan-to-value ratios and weaker interest coverage.

So, how did River Green get to this point?

In 2019, Goldman Sachs originated a €196.2m loan mainly to LCR Real Estate, an Israeli investment firm, to finance the acquisition of the River Ouest property, a campus-style office in Bezons, the Western suburb of Paris, a “tier two” location close to business district La Defense. At time of acquisition, the property was valued by CBRE at €343m and had been occupied since 2010 mostly by Atos, a large investment grade-rated French tech company using the River Ouest property as its headquarters. The loan was then securitised in 2020 into the River Green CMBS, with moderate leverage of 57%. Four debt tranches were issued, originally rated Aaa to Baa2 by Moody’s, with an initial maturity in January 2023 and two extension options. The transaction attracted significant investor interest during the new issue process, driven partly by the perceived strength of the tenant, which was anchored by long term leases expiring in 2030 with no break option. River Green was also the first European Green CMBS, backed by a good quality asset with a “very good” BREEAM environmental certification. 

In January 2024, the loan maturity was not extended as Atos was undergoing a restructuring, which triggered a default on the loan backing the CMBS. In response, the special servicer extended the loan maturity to February 2026 (with a one-year extension option) and amended the CMBS structure to allow for a five-year workout period while investors were still waiting for an updated valuation.

By late 2024, Atos had completed its restructuring, reduced its debt burden, and announced a strategy focused on asset disposals and operational costs – it is expected to renew the lease on just one-third of the space it currently occupies. Earlier this month, independent valuer Cushman & Wakefield revised the market value of the River Ouest property to €139.1m as of March 2025 (its previous valuation was €307m as of January 2023) with a vacant possession value of €35.15m, indicating a decline of some 59% to 91% from its original market value. The wide range shows the uncertainty around the valuation, and in our view also highlights the risks of single tenant, single property-backed CMBS transactions. 

Following the Covid-19 pandemic and structural shifts in the office sector, companies have increasingly prioritised more central locations while downsizing their space requirements. As a result, demand for offices in the suburbs of cities such as Paris has declined sharply, pushing vacancy rates higher. As highlighted in the Cushman & Wakefield valuation report, assets in weaker locations, such as the River Ouest property, are becoming obsolete, with limited investor appetite and little to no tenant demand. The report notes that such properties now face significant liquidity challenges. The property’s strong energy efficiency credentials have done little to support its marketability, and costly redevelopment may be required to attract investors.

Since 2023, each debt tranche has been downgraded four times by Moody’s, leaving the ratings at between Baa2 and Caa2 as of July 2025, down from the original Aaa to Baa2. These downgrades have served as early warning signs for investors. The most senior notes have a principal balance of €87m, and therefore a full writedown of the mezzanine debt and a partial writedown of the senior notes looks inevitable given the drop in the value of the collateral. The final outcome is difficult to predict given the wide range of the valuation, and limited visibility on the sponsors’ willingness to support the transaction.

Historically, CMBS defaults tend to require a catalyst, typically a loan maturity or a major tenant event. Default rates have been highest among sectors undergoing structural challenges, such as hotels and retail, and concentrated in loans with high leverage and secured on property occupied by single tenants. We have seen 15 European 2.0 CMBS defaults since the global financial crisis, with only one deal, the UK shopping centre-backed Elizabeth Finance 2018, resulting in losses to AAA bondholders, while six other defaults are still pending.

In the case of River Green, a combination of poor location, a distressed single tenant, and broader headwinds such as structural changes in the office sector and a sharp rise in European CRE loan yields, help explain how an initially solid deal now faces principal losses.
 
As yields and property valuations have been stabilising since 2024 and financing conditions for CRE loans have improved, this year has seen the highest volume of European CMBS issued since 2021. Our exposure to CMBS has remained low, and we’ve largely avoided recent new issues. That said, we believe investors should continue to assess each credit on its own merits and demand adequate compensation for additional complexity and lower liquidity.