Friday, June 26, 2009

S&P Slaughterhouse 5 Continues


Thursday, June 25, 2009

2017 before CRE recovers

Richard Parkus from DB says that CRE will not rebound until 2017 - see the Forbes article.

He's mighty popular lately, and I agree with a lot of his points, but not this one.

Loan Spreads

Seems expensive, but A.Friend published these levels on new CRE loans:

Anchored Retail 55 - 65% LTV
Rates: 10 yr Treasury + 400-450 spread

Strip Center 55 - 60% LTV
Rates: 10 yr Treasury + 450-550 spread

Multi-Family (non-agency) 65 - 70% LTV
Rates: 10 yr Treasury +275 spread

Multi-Family (agency) 70 - 75% LTV (most aggressive)
Rates: 10 yr Treasury + 250 spread

Distribution/Warehouse 60 - 65% LTV
Rates: 10 yr Treasury + 400 spread

R&D/Flex/Industrial 60 - 65% LTV
Rates: 10 yr Treasury + 450 spread

Office 55 - 65% LTV
Rates: 10 yr Treasury + 360 spread

Hotel 50% LTV
Rates: 10 yr Treasury + 500 spread

Nigeria and Gazprom JV

Zero Hedge, c/o Robin, brought to our attention the new JV between Nigeria and Gazprom - presented without comment...


Update: I haven't stopped laughing ... read the comments on ZH too...

Resi versus CRE Prices

CR comments on price declines:

This shows residential leading CRE (although we usually talk about residential investment leading CRE investment, but in this case also for prices), and this also shows that prices tend to fall faster for CRE than for residential.

Wednesday, June 24, 2009

CMBS spreads unchanged to slightly tighter on bad news

How can spreads be unchanged today! A ton of bad news comes out and spreads go down or sit tight - sounds like the equity market.
  • ESH bankruptcy front page news - WSJ misrepresents the CMBS debt and quotes an idiotic lawyer who doesn't know who owns the bonds and apparently never used the PHDC function in Bloomberg or called the Trustee (who delivers coupon payments to the bondholders every single month).
  • Red Roof Inn defaults - again WSJ reporting. It's in several CMBS deals as previously noted.
  • Tishman defaulted on an $86mm (86, the same age as Alan Tishman when he passed on) land loan on 42 acres it purchased just 3 years ago.
  • Worldwide Plaza can't close a deal.
  • Naysayers of the current government "plans" are claiming to be in the Appalachian forests but are found to actually be cutting through the Argentinian bush.
  • Six Flags - bankrupt. (Looked at a CMBS loan once - hah).
  • Eddie Bauer - bankrupt. Whiskey Tango Foxtrot (WTF)?
  • Reuhl (aka Abercrombie & Fitch subsidiary) - bankrupt.
  • Even the Pink Elephant went bankrupt last week.
  • Apartment rents in Manhattan dropped 12.3% - to JUST $3k or so for a 2 bedroom apartment without a bedroom. In the real world (outside of the city) that would buy you a far more than average house worth more than half a million (assuming T&I of $3.6k per year, a 20% downpayment, 30-yr mtg, and 5% or 6% interest). Not to mention that the median income of the entire country, including Manhattan, is just about $10k more a year than an 'average' apartment in NYC would cost you!

I guess news like BB&B earning money last quarter (mainly because its competitors are just empty store fronts now), ReREMIC deals, and hopes that TALF 2.1 works are carrying the market through. Spreads didn't move today.

Nothing to see here, move along.

Update: Ed McMahon was also 86 when he passed, on the 23rd! Further, Eddie Bauer (the human) died in 1986, the same year Billy Ocean and The Cure and even The Eurythmics put on shows at Six Flags, the number for the Chinese manufacturer that makes the clothes sold at Reuhl stores begins with 86 (China's country code), Governor Sanford 86'd his family this very week to get his jollys on with his latina lover, I once stayed very near the #86 Red Roof Inn (in Richmond, VA) at a much nicer establishment in town, I have driven by the #86 Extended Stay south of Charlotte within the last month, Maxwell Smart was Agent 86, the Sopranos had 86 series (so did Secret Agent Man), not to mention that the ship my grandfather served on in the war is docked at pier 86 in Manhattan at this very moment! There is definitely a pattern here - it involves Tishman, although it is unclear at this time what the precise connection is - stay tuned for further updates.

Just give me time - I'll tie McMahon to all this somehow - the Donald did bail him out of foreclosure... Check back for further updates...

Red Roof Inn Defaults

Accor (owner of Motel 6) sold RRI for $1.3 billion back in 2007 to Citigroup's Global Special Situations Group (GSSG), Westmont Hospitality Group ("Westmont"), and Westbridge Hospitality Fund, and partially financed that with 2 pari passu loans spread across 4 CMBS deals totaling $366 million. The rest of the senior mortgage ($655mm) didn't make it into a CMBS, and is likely on Citi or Bear's books, but it's not clear, and there is also some mezz debt ($164mm). That put's the new owners' equity at about 8 or 9 % of the purchase price. See the WSJ article for more.

The CMBS loans:
CGM RRI Hotel Portfolio - CD 2007-CD5 and CGCMT 2008-C7, 52 properties, $103mm

RRI Hotel Portfolio - BSCMS 2007-PW17 and BSCMS 2007-PW18, 79 properties, $263mm

UPDATE: Corrected the ownership structure.

Not the NY Waterview that your thinking of, but the Chicago one....

Failed condo projects continue to be the primary scourge in CRE.... From Calculated Risk, and others, go to CR's page for a nice image and crane controversy.

Monday, June 22, 2009

Commercial Real Estate Prices Fall 8.6% in April (Bloomberg)

New York, June 22, 2009 -- Commercial real estate prices as measured by Moody's/REAL Commercial Property Price Indices (CPPI) decreased 8.6% in April, leaving the index at 25.3% below its level a year ago and 29.5% below the peak in prices measured in October 2007.

Moody's says the large negative return for April likely reflects in part the fact that deals closed during that month were negotiated at the end of 2008 and in the first quarter of 2009, when securities markets and overall sentiment were plunging.

"The size of April's decline, following a 5.5% decline in January, also suggests that sellers are beginning to capitulate to the realities of commercial real estate markets," says Moody's Managing Director Nick Levidy. "While loss aversion is no doubt still in play with many owners, more distressed sales appear to be occurring, resulting in more negative returns and causing larger drops in the index."

Overall sales volume in the market also fell in April as compared to March, and by count April had the lowest number of transactions in the history of the CPPI.

In the Eastern region, the CPPI shows prices for all four property types declining over the last year, but with apartment prices holding up best.

These have declined 11.8% from a year before, compared with drops of 15.9% for industrial properties, 27.2% for offices, and 21.5% for retail.

Overall, the South has been the worst performing region over the last year. All four property types have seen annual declines of more than 20%, with industrial properties falling the most, with a decline of 28.8%.

The indices also show that all four property types have performed worse in Southern California than they have in the Western region as a whole.

In Southern California, the office market has been the worst performer, with prices dropping 22.2% in the last year.

The three major office markets -- New York, San Francisco, and Washington DC—have all posted significant annual declines. The San Francisco office market saw a drop of 20.3%, while New York had a decline of 12.9% and Washington 21.1%, both less than the yearly decline for the Eastern region of 27.2%.

Moody's notes the Florida apartment market, like the apartment market in the South as a whole, has experienced three straight years of falling prices. Florida apartment prices are now down 31% from their peak.


Moody's/REAL Commercial Property Prices Indices are based on the repeat sales of the same properties across the US at different points in time.

Analyzing price changes measured in this way provides maximum transparency and methodological rigor. This approach also circumvents the distortions that can occur with other commercial property value measurements such as appraisals or average prices, says Moody's.

The title of this report is "Moody's/REAL Commercial Property Price Indices, June 2009."

Wednesday, June 17, 2009


Someone, somewhere else, asked about how much REIT debt is in CMBS deals...

These are based on the best data I had available from various third parties and Bloomberg data

Financial Overhaul rules

Some highlights, but more later...
  • Residual Interests of 5% - pfandbriefe, covered bonds, etc. Consumer ABS deals typically had retained interests too - as an issuer, you can effectively value them at close to zero, pass the costs along to other investors (and ultimately the consumer/borrowers), and enjoy any upside with no risk. In CMBS the mechanism is to have the special servicer buy the first loss piece. For subprime HEQ, they just made horrible loans to people who never should have had them and sold them to investors who never should have bought them - that mechanism is currently working as well through foreclosures and invesment losses.
  • Lack of data on loans - Even in consumer and resi ABS, there are fairly sophisticated models built around fairly detailed data.
  • The SEC does not currently have a system to track ABS? Surely WAPO misinterpreted - I haven't finished the 85 page doc yet. Maybe their going to decimate the bid/ask and put Wall Street traders out of business, or at least severely hobble it, similar to what happened in corporates.
  • New rating scale for securitized products - this is a bad idea for so many reasons.
  • Indications that there is a problem with the issuer-paid ratings model - the flip side of that, a consumer-paid ratings model doesn't work either, because most consumers wouldn't pay for it (just the ones whose charters required it, and even they would busily re-write the rules). Investors need to focus their expenses on evaluating the investments - you get paid for doing your homework, not for taking the letter-rating off the guy next to you who did his homework.

  • Regarding the new rating scale, changing ratings on securitized products to some new scale, say S.AAA instead of AAA, doesn't do anything at all except add to confusion and opaqueness in the market place. Further, what does it mean for insurance companies that have ratios and charters based on the historical rating system - obviously they have to change their rules/policies. I'm a strong believer, along with the majority of the market I would imagine, that the ratings are more or less worthless. Yesterday's release makes note of this with the comment "Regulators should reduce their use of ratings in regulatory and supervisory practices where ever possible".
  • The lack of transparent information is an important issue - the more data, and the more normalized it is, the better it is for the market. However, I don't think the SEC has a clue what level of information is available in both the resi and CRE market - it's very comparable to the level of detail a bank would have if it were purchasing a portfolio of loans or another whole bank. The same can't be said for consumer ABS or CDOs.
None of this debate is new, and the government solutions have the same problems they did over a year ago. In fact, almost one year ago BOA published a report titled "The Illusion of Progress", which touched on all these topics (I'm more or less in agreement) and also discussed accounting changes and price transparency.

Tuesday, June 16, 2009

Maguire Sells 3161 Michelson

As an update to yesterday's post, CoStar reports that Maguire sold the tower for $300 psf or $160 mm, significantly less than the $240 mm ($163 outstanding) construction loan they financed it with. Yesterday, it wasn't clear which building or what the terms were...

Although in the heart of subprime servicer operations in Irvine, the tenants are slightly better in this tower with Hyundai Motor Finance accounting for about 1/5th of the space...

Monday, June 15, 2009

Macerich is selling assets

The WSJ reported last week that Macerich is selling off assets, but only named Queens Center Mall on Long Island. There are probably other Malls listed somewhere, but we'll hold off on identifying them until we get more color.

What is more interesting to us at this point, is a list of all the CMBS deals Macerich has loans in, so let's start with that:

In addition to the Danbury Fair Mall deal and 05-xlf, note that the BIX deal has two exposures that total over 20% of the deal.

The data in this report is a little dated, and I previously noted that Macerich reifed a couple of mortgages back in April. I also put out a list in May that highlights all maturities in the REIT space - I encourage you to take a look.

Extended Stay Files

Extended Stay was destined for failure as we noted on numerous occasions, but in detail back in December. They defaulted earlier this month on the big CMBS loan, and the mezz lenders (BOA and Wells Fargo) and holders started a court battle last week.

Today's big news is that they finally filed for bankruptcy - they should of done this the day after they originally closed the deal.

Delinquency now at 2.09%!

Delinquencies climbed 29 bps to 2.09% last month!

I'm missing a few deal updates, but that's 90+% of the universe...

Rating Actions

Over 3,000 year-to-date! Compares to just over 1,000 for all of 2008, and less than 200 in every year prior back through the turn of the century.

CMSA Was Last Week

You didn't miss much. Mostly a lot of concern and disbelief over S&P's comments a few weeks ago regarding downgrades to the AAA stack. Especially IOs - heavy selling coming soon from insurance portfolios?? Insurance companies average about 10.1% of their CMBS portfolios in Support and PAC IOs.

Also some talk about the guidance on new issue TALF, with some looking for a dozen new issue deals by year end, starting in August. These will likely all be single borrower and large loan deals - we're likely to see a resurgence in the large loan fixed deals that have been dormant in recent years after being replaced by the Pari Passu structures seen in Conduit/Fusion.

MaGuire Properties

is taking a big hit selling properties to raise cash, but even worse they've apparently defaulted on the CMBS loan for 17885 Von Korman (Quintana Campus, which I can't find in any deal, but the news stories indicate it is a CMBS loan - let me know what you know...). Apparently they had a big tenant break a lease in March leaving occupancy at 40%, and the loan is due in 12/2011 for about $84mm, and there is additional financing in place bringing the total owed to $106 mm.

Maguire has a number of problems already. They had the highest exposure of any other property company to subprime mortgage servicing operations due to their heavy office exposure in Irvine, CA (where this Quintana property is located). Further, a property named Solana that Maguire, the man not the company, owns is also seeking debt relief as we previously noted here, and here.

From Bloomberg:
The real estate investment trust sold the 19-story building to an affiliate of the EMMES Group of Companies, according to a statement today. Maguire sold the property for about $160 million, 40 percent less than its construction cost, the
Wall Street Journal reported, without citing anyone. Maguire is repaying debt from the 2007 purchase of buildings from Blackstone Group LP. The company had paid $2.88 billion for 24 office properties and 11 development sites, as Orange County vacancies were rising after the collapse of the subprime-mortgage market. The subsequent credit-market freeze blocked Maguire’s efforts to refinance, Chief Executive Officer Nelson Rising said in an April interview.

Friday, June 5, 2009

North Point Mall Losing Belk

North Point Mall ($155mm, MLMT 2006-C1) in Alpharetta is losing Belk, it's 4th or 5th largest anchor. This is a GGP mall, and has a tighter DSCR than other GGP malls at just 1.32x as of the 2Q 2008. The LTV is 48.86%

Thursday, June 4, 2009

S&P Delivers Another Right Hook

Under our 'AAA' stress, losses from this vintage range from 12.3% to 60.4%, but these loss rates are commensurate with an extreme economic downturn and do not represent our expected case.

Ten-year super-duper (30% credit-enhanced) classes have a higher potential for downgrades than the shorter weighted-average life classes. The ratings on older vintages (2000-2004), which were issued well before the peaks in valuations (2007) and effective rents (2008), and generally utilized stricter underwriting standards than more recent vintages (2005-2008), saw less downward movement on average in our analysis.

Extended Stay defaults... Biggest Loser - Taxpayer

WSJ reports

U.S. taxpayers also have had an interest in the talks because another lender in the buyout was Bear Stearns Cos., whose stake was taken over by the Federal Reserve after Bear collapsed in March 2008. BlackRock Inc. has been representing the Fed in the restructuring talks, according to people with knowledge of the negotiations.


Most of the holders of junior mezzanine debt bought at a discount, some around 60 cents on the dollar, but others as low as 10-15 cents, say debt holders. Both the senior and mezzanine loans mature June 12, with extension options.

can't pay their phone bills...
... May after Extended Stay failed to pay a $3.5 million late phone bill, according to the people familiar with the matter.


The suit, filed in New York state court, alleges the banks colluded with the borrower and "hatched a Machiavellian scheme to wipe out " the investors who bought the junior slices of the $3.3 billion in mezzanine debt. Lightstone isn't named as a defendant in the suit. Mr. Lichtenstein declined to comment.