Thursday, April 30, 2009
Heavy defaults this month are likely to make a lot of headlines.
Friday, April 24, 2009
US CMBS Deliquencies Up 18% In March; Only Health-Care Ppties ExemptDOW JONES NEWSWIRES
Standard & Poor's Ratings Services said the delinquency rate on U.S. commercial mortgage-backed securities, or CMBS, surged 28% just in March as the figure quickly approaches the peak following the last recession.
Commercial delinquencies, which long lagged the problems in the residential market, have been spiking since mid-2008 as the recession deepened, vacancies increased and new owners have been unable to refinance mortgages.
The rate climbed to 1.85% from 1.57% in February, putting the figure near the December 2003 peak of 1.96%. All property types, except health care, saw higher delinquency rates and delinquent amounts.
The office sector's delinquencies rate surged 48% just last month, while the amount of retail loans behind - $3.46 billion - overtook multifamily ones as the biggest source of delinquencies. A total of 98 retail loans became delinquent in March, with some related out-of-business chains like Circuit City and Linens 'n Things.
S&P said it continued to downgrade CMBS last month, cutting 130 ratings, while upgrading two. During the first quarter, 96% of 402 ratings actions were downgrades.
-By Kathy Shwiff, Dow Jones Newswires; 201-938-5975; Kathy.Shwiff@dowjones.com
I count 7.
- Deliquencies is not a word
- PPTIEs is not a word
- the delinquencies are either up 18% or 28% - which one?
- Delinquencies are not approaching the peak of the last recession. The 2001 recession had relatively low delinquencies (half today's levels), and the early 1990s had much higher delinquencies than 1.87%.
- Oh. She thinks there was a recession in 2003.
- A "surge" of 28 bps is not a surge (even the ironically named Glacial Surge represents an increase in velocity of a glacier up to 100 times it's normal speed)
- There were over 1500 CMBS rating actions in the first quarter.
The mall is having issues: The 3Q 2008 numbers were 1.38x NCF DSCR and 81% occupancy down from prior year occupancies of 94+%, and significantly lower than the rest of the MSA. They lost JC Penney and apparently there is dark space (no relation) in that section of the mall. And there is a huge ongoing local dispute because the mall shut down early one day following a predominantly african-american track event - the NAACP has given speeches, names like Jim Crow were plastered on billboards, and a boycott has been sounded by african american and hispanic populations (this mall is in Texas) - so it has issues.
GGP and SPG jointly own the mall, so I guess Dillard's figured it could railroad its way around that pesky contractual lease given the problems at the parent co's. Nope. The mall counter sued Dillard's:
The mall’s owners ask for a declaratory judgment, attorneys’ fees and damages related to Dillard’s alleged breach of contract, “business disparagement” and “interference with business relations.”Now their legal fees and judgments are likely to exceed any lease expense they could have had.
Searching for on-line law degrees with a focus on CRE law now...
Thursday, April 23, 2009
Wednesday, April 22, 2009
The property performance declined drastically last year (Madoff?) to just 0.63x DSCR for YE 2008 from 2007 DSCR of 1.32x. Simon has been covering the shortfall out of pocket, but apparently stopped doing so, according to Kris Hudson at the WSJ (sorry no link, but pasted below).
No special servicer notes were readily available. You'll recall that Eastland Mall (formerly Glimcher's) went through a similar process, but it dragged out for years and the saga continues today.
Pain in Palm Beach
Even the biggest landlords face losing properties to foreclosure in this recession. Take mall owner Simon Property Group Inc., which is poised to forfeit the 42-year-old Palm Beach Mall after the servicer on the mall's $51 million securitized mortgage initiated foreclosure proceedings last week.
Simon inherited the mall in West Palm Beach, Fla., when it bought two rival mall owners in 1996 and 1998. Even then, Palm Beach Mall was losing out to newer, ritzier malls in neighboring cities. Simon renovated it this decade, but it continued to decline and now is mostly empty. An effort to lure home-goods retailer Ikea was scuttled by the recession.
In recent years, all of the cash flow generated by Palm Beach Mall went to paying the interest on its mortgage. But it fell short in the past year, and Simon opted against chipping in extra money to cover the difference in March and this month.
Efforts to renegotiate the loan failed, according to a person familiar with the talks. A representative of the mortgage's servicer, Orix Capital Markets LLC, declined to comment, as did a Simon representative.—Kris Hudson
Nothing much new. Noted that Travelocity did not renew it's 145k sq ft lease (they have a total of 540k sq ft), and that revenue was down 60% at the Marriott. Maguire is the guarantor, the person not the company, and has defended the request as just standard paper pushing - it is not standard when you call up the special servicer (unless you work at a distressed debt fund).
I really don't like Travelocity - you can't open your travel plans in different windows/tabs - it will just crash. They went to some effort to make it work in a non-userfriendly way, as evidenced by American Express travel, which uses Travelocity's framework for their website but just brands it as AmEx Travel. The American Express website doesn't have all the non-user-friendly bits. So, my point is that I'm negative on Solana.
Tuesday, April 21, 2009
The property is encumbered with a senior mortgage and mezzanine debt held by Otera (a unit of Caisse de dépôt et placement du Québec). So the term "auction" is used lightly - much like John Hancock tower earlier this month, there was likely one bidder and a distressed/non-market price, essentially held just to transfer control to the appropriate party. On the other hand, REFI implied nearly two months ago, that Otera had hired Eastdil to market the property for sale, so it's not 100% clear.
I do not know the auction results from yesterday - let me know ...
Control was transferred to Otera at least at a 1/4 discount to Macklowe's purchase price, but likely more...
Saturday, April 18, 2009
The 2008-C2 deal has since added another large delinquency to its list of problems. Regency Portfolio is a 60-day delinquent $25 mm loan on 20 properties mostly located in Iowa. The sponsor is a CRE firm run by two brothers (Rob and Jamie Myers) who actually come across as rather seasoned regional CRE investors and developers. They had multiple business offshoots, almost all in Iowa, that ran the gamut from shopping center development, to resi developments (largest home builder in Iowa). They got overleveraged, and spent too much time at the Resi trough, and just got caught up in the general hype that has crashed our dear market...
They've since had to layoff over 100 employees, defaulted on multiple loans, and been hauled in to court losing numerous assets in the fray.
They also owned a boat named the 63' yacht, RegenSea, which brings back memories of another CRE investor who defaulted on a slew of loans - Hurley Booth (Jr.), who owned a 41' footer down in Tallahassee named the ContingenSea. What cute boat names.
Hurley Booth missed some of the limelight when he defaulted on virtually all of his loans at once, because this all happened in late 2007 and early 2008 - right when the news was focused on MBS Companies (Michael B Smuck). Hurley owned a number of student housing complexes around Tallahassee and they are mostly REO now, although Midland has been a little slow to make that move on the loans it controls - not sure why. The loans were spread across three deals: FUNBC 2001-C4, JPMCC 2005-C13, and JPMCC 2006-C14. The Booth website has the tagline, "Building a Legacy" - surely they could've come up with something less ironic by now.
Do you know a CRE investor that owns a big yacht? Let us know and we'll see if they're behind on payments. ;-)
The fact that there were appraisal reductions related to the Promenade Shops at Dos Lagos and the Westin Portfolio (in both JPMCC 2007-C1 and 2008-C2), which were so widely reported in November they helped move the market to historical wides, was no surprise. However, the ASER calculation was off by a $100,000 on the Promenade Shops loan - a mistake that you really don't expect to see. It is a rather simple calculation.
Keeping in mind the '08 deal in particular was a small deal dominated by several large weak loans, the interest shortfall reached high into the capital stack effecting as high up as the A-rated (orig. rating) F class (higher if they stick to the incorrect calculation - there has not been a comment on the error yet...). This is significant - the subordination rate on this class is over 9% (3x historical losses) and it's already being hit with shortfalls. Again, it was a weak deal, a small deal, and a chunky deal, but a significant event nonetheless.
The 2008-C2 deal has since added another large delinquency to its list of problems. Regency Portfolio is a 60-day delinquent $25 mm loan on 20 properties mostly located in Iowa. More on this later...
The whole story is worth putting up the picture of the man, J.P. Morgan, with a knife in his hand ready to cut out the entrails of the poor originator who made these pathetic loans in the first place.
Disposition and Gain Activities
During the first quarter, the Company completed
$48.4 millionin aggregate of dispositions at an average cap rate of 7.4%. Subsequent to quarter end an additional asset closed for $15 million.
The Company currently has assets in its operating portfolio that are under contract for sale for an aggregate sales price of approximately
$32 million, as well as approximately $72 millionthat are currently under non-binding letters of intent scheduled for completion in 2009, subject to certain conditions. Additionally, the Company has $300 millionof properties already in the market with brokers and anticipates taking an additional $290 millionto market within the next month. Johnny Hendrix, Executive Vice President and Asset Management said, "We are making good headway in our desire to achieve our full year dispositions goal, however, we provide no assurance that we will be successful in closing these transactions."
Let's be crystal clear here. You default on a loan, you have 1 party to deal with, and it is the Special Servicer. That is their precise job, and they get paid 100 bps for doing it. You do not deal with the master servicer, bond holders, originator, trustee, or anyone else.
The Special has some pretty defined steps they may take in order to resolve the loan. They can foreclose on it, put in place new management, and eventually sell the property and apply any recoveries to the Trust (after taking out for any expenses involved). Alternatively, they can extend the loan term, generally for 1 year at a time, and rarely more than 2 years. Without any data to back it up, but with reasonable insight, these two options account for the overwhelming majority of workouts on defaulted loans.
It is not supposed to be easy to violate a contract you signed on a mortgage document - so, you don't get to complain about it too much.
Friday, April 17, 2009
GGP filing is the big one, despite the fact that it has been widely anticipated for quite some time and is still trading above it's lows set pre-bankruptcy. It was a little surprising to see a fair amount of the bankruptcy remote SPEs that own the malls run by GGP included in the bankruptcy filing, but I think some folks' conclusions are a little too early and may prove to be wrong. At the end of the day, even though it is a bunch of malls, their CMBS is low-levered and has great cash flow.
That being noted, I spent a fair amount of time while traveling this week reading other blogs while squinting at a PDA and waiting on some form of transit. I'm a strong supporter of many well written blogs, and generally believe they provide a better source of information than the legacy news organizations. You cannot even compare the innacurate and insufficient 'news' from sources such as Johnathan Weil's columns in Bloomberg to a well-argued and fact-supported blog entry from the likes of Zero Hedge or Calculated Risk. Even some linkfest format blogs are well thought-out, and can be useful. However, occasionally you catch the blogs that you really like stepping outside the bounds of their knowledge and jumping on the journalistic hysteria bandwagon, and it's just ashame (sorry no links, but the initials are ZH and CR).
But I digress, some other stuff happened this week too. Vacancies increased, Beige Book was released and was negative, The Donald saying things like you'd have to be dumb not to be buying CRE (I actually saw this during the 5 minutes I was in front of a TV), and DDR put up a portfolio of 52 shopping centers up for sale.
The DDR was the most interesting, and mostly overlooked, bit in my opinion. A number of the loans are in outstanding CMBS deals from 2003ish, and more are in late 1990s transactions that have since paid down or defeased. Most are in the NE (so none of these are in the big SE portfolio that you're thinking of in CGCMT 2007-C6 - which has seen the AMs traded a fair amount in the 1Q 2009). Some of the properties are likely to be even more desirable to buyers because they can assume the loans with very generous underwriting relative to any loan they'd be able to get today. That's probably the only thing DDR has going for it - you're not really supposed to sell in the trough part of the cycle...
Tuesday, April 14, 2009
Law firm Wilmer Cutler Pickering Hale and Dorr LLP on Monday sent a letter to General Growth and one of its outside law firms explaining that it represents holders of 25% of the company's $395 million in bonds due last March 16 that weren't paid, according to people familiar with the matter. Bondholders must collectively represent at least 25% of a given bond issue to compel a trustee to act on their behalf.
The GGP situation continues to be interesting. The malls are cashflowing and low-leveraged for the most part, while the company is highly levered and is swamped with maturities that it can't refi because there is no market to refi into. I continue to believe that there are recent investors (maybe Ackman) who have bought the longer-dated corporate debt for pennies, only to force a bankruptcy where they are likely to get paid back near par.
Saturday, April 11, 2009
Tuesday, April 7, 2009
Again, this is not unexpected and is in fact an extremely delayed reaction on their part. The 20% super seniors (these are prior to the 30% super dupers - I hate that word) are a bit of a surprise, but not really. I expect this will reign in some of the tightening temporarily, but look for spreads to continue their momentum tighter until some truly bad news regarding CRE starts rolling in.
These little tidbits about 15% price declines, John Hancock, and 1.8% delinquency rates aren't really *bad enough* to drive prices lower than the already distressed prices in the market. Frankly, PPIP et. al. are not good enough to whip prices higher at a faster pace either.
Monday, April 6, 2009
Mon Apr 6, 2009 3:22pm EDT
NEW YORK, April 6 (Reuters) - Standard & Poor's on Monday said it will make negative pronouncements on U.S. commercial mortgage-backed securities on a "large scale" in coming days after a review of the securities.The most-recently issued CMBS are "highly susceptible" to downgrades, including top-rated "AAA" issues, after the review that accounted for eroding real estate markets, lack of financing for the assets, and the economic recession.
Friday, April 3, 2009
Macerich - Refied two mortgages, extended two. Shops at North Bridge received a $205 mm 7-year, 7.5% coupon mortgage from insurance money; it refies a $205 mm pari passu loan with a 4.67% coupon in LBUBS 2004-C6 and MSC 2004-IQ8, but the new DSCR is still roughly 1.89x using 3Q 08 annualized net cash flow numbers. On a separate unamed property, they closed a $115 million bank loan with a 2-year term floater at L+350 bps with a 5.25% floor.
Macerich also extend the $54 mm Inland Center in San Bernadino (LBUBS 2004-C2) loan all the way out to 2/2011 with a 50 bp coupon step-up every 6 months. BOMLW points out that this destroys the A2 holder who would have been paid down substantially had the loan paid off as scheduled. Again, the other extended loan remains unamed but received a 2-year extension as well.
The mention the two Simon malls in LBCMT 1999-C1 that we discussed yesterday.
Brandywine closed a $90 mm mortgage on a Philly office building taking out a soon to be maturing loan of $69mm. No further details.
Liberty also reported 6 separate loans funded by life insurance for a total of $317 mm. Half floaters and half fixed, with an all-in coupon of 7.1%.
Thursday, April 2, 2009
Office Vacancies are up 70 bps to 15.2% according to the REIS' data.
It's going to get much worse than that. I expect it to exceed 20% by year-end.
Don't read the WSJ article about this, btw, LingLing muddles fact and fiction. The headline is accurate though, and their graph is very nice (see right).
LBCMT 1999-C1 New Loan
Penn Square Mall
Rate 7.025% 7.75%
Orig. Bal. $74.8mm $100mm
Most Recent $65.8mm
Rate 7.00% 7.79%
Orig. Bal. $89.6mm $97.5 mm
Most Recent $78.6mm
Both of the prior loans were amortizing, so Simon took out a signficant $53.1 mm in cash out of the deal. This is realy what I expect to see in the coming "wave of maturities" - the exception being the 5-year loans starting in earnest in late 2010 and 2011 that seem problematic to me.
2008 YE for Penn Square was a 3.34x DSCR - why doesn't anyone report that! I stumbled across these refis (Hotel Tango Journal Record), but had no problem finding the maturity default last week on another of their malls
Now someone will come back and say that everyone else is saying that it's going to allow the evil banks to mark their positions to some fantasy level - but, they already are. You can't mark these things up any higher than 100%!
This ultimately changes nothing. The relatively insignificant changes it makes to where you can bucket your loss is just another thing you need to analyze (discount) before you invest in the company in question.
The market is dying for good news...
Some believe it implies severe price corrections are coming for CMBS, but it doesn't really tell that story. The sole bidder had been buying up the mezz position for months - not only did they have a higher basis, but who would bid against them? They obviously are going to protect their position, so no serious bidder is going to compete, thus guaranteeing a low price.
Others point to it and say it proves CMBS are a good investment because the senior mortgage isn't close to taking a hit on this one. That is not fair either. The average LTV is just below 70% in CMBS, significantly higher than the 50 handle LTV on this loan. Further, LTV has historically been somewhat correlated to credit (lower credit requires a lower LTV by the underwriter), but that wasn't the case in recent years where lower credits could come into CMBS and receive high senior LTVs (some of the lowest LTVs went to high credit institutional investors).