Friday, August 28, 2009

The Late Show

Nothing new to report. The rating agencies started dinging Peter Cooper Village/Stuyvesant Town and the Extended Stay deals, again, today...

PCV/ST downgrades. And some thoughts on their mezz debt that was being shopped around.

Extended Stay - Fitch Affirms (a few days back) S&P puts on Rating Watch Negative

Wednesday, August 26, 2009

The Aussie's cousins are not fairing any better

UK CMBS isn't like US CMBS either, and they are having problems similar to the Aussies - short-term, floating-rate, maturing now and underwater...

From Bloomberg (again, no link, so sorry)
Caisse de Depot et Placement du Quebec, Canada’s biggest pension-fund manager, may lose 285 million pounds ($462 million) on debt secured against investor Simon Halabi’s London properties after their value fell about 50 percent, according to two people familiar with the situation.

Caisse de Depot holds the junior portion of a 1.45 billion- pound loan secured against Halabi’s nine office properties, said the people, who declined to be identified because the information isn’t public. The senior portion of the loan, 1.15 billion pounds, was packaged into commercial mortgage-backed securities in 2006. Holders of the bonds, which are in default, rank first when the debt is repaid. Interest payments to the junior lender have already stopped.

Those Aussies just can't come to an agreement

Bloomberg (sorry no link) was also out today with a story about a third Aussie firm that thinks CMBS is the best thing since sliced bread (more or less - that is journalistic discretion right there)

“We’re pretty confident the CMBS route is the best route
available to us,” Sewell said in a phone interview from
Melbourne yesterday. “The bank syndicate option would come with
upfront charges as well as ongoing covenants, whereas CMBS,
whilst it is a little bit more restrictive, doesn’t have ongoing
covenant issues.”

Oh, and Aussie CMBS is nothing like domestic CMBS - it's worse

About 44 percent of the rated Australian CMBS market, or
A$3.4 billion, is scheduled to mature in 2009, according to a
report by Fitch Ratings, creating a “maturity hump.”

When the Levee Breaks - Tishman

Bloomberg reported
Aug. 26 (Bloomberg) -- Tishman Speyer Office Fund, an Australian-based fund that invests in U.S. property, renegotiated terms on a revolving credit facility after the value of its real estate fell 33.5 percent.
The fund, whose 18 U.S. office properties lost a third of their value in the 12 months through June, “is walking a fine line on the liquidity front,” according to a report by JPMorgan Chase & Co. Sydney-based analysts Michael Scott, Rob Stanton and Richard Jones. They rate the Australian-traded shares “neutral.”

just 8% more and the levee breaks...
The new loan covenants would allow for another 7.7 percent decline in the fund asset values, which is ”not a large buffer in today’s environment,” the analysts wrote.

Westfield - "“We think asset values have probably bottomed out"

Phew! I thought we had more coming - good thing it's over!

Tuesday, August 25, 2009

Someone is in BIG trouble!!!

We're not going to name names, but rumor has it that someone is in big trouble - and the fact that Zeus is hurling bolts of lightning at your office is probably not a good sign.

Spreads are tighter this morning in CMBS.

More on San Francisco Hotels

CR had a little write up on San Fran Gate article about hotels in California there...

Some prior articles from us are here.

Sunday, August 23, 2009

Rating Agency Integrity

Without naming any names, the following is a quote from a recent rating action on a CMBS deal that demonstrates the continued failure of rating agencies.
Fitch analyzed the transaction and calculated expected losses by assuming cash flows on each of the properties decline 15% from year-end (YE) 2007 and property values decline 35% from issuance.

Are they telling us that they think cash flows will only decline 15% and that property values will only drop 35% since issuance? What kind of stress test is that?

They end up with 5% estimated losses on the deal, including a forecast on some of the maturity defaults. On the same deal, Citi is forecasting 10.3% losses over the life of the deal in their stress test.

Cramer discusses CRE...

...generally just do the opposite.

Although, in all fairness, Brandywine is positioned pretty good relative to some other REITs.
CMBS: They have 10 loans maturing in 2015 through 2017 (none later) in CMBS worth about $230 mm, they have 3 loans maturing over the next couple of year worth $61.475mm (see below), and 1 that matured this year (One & Three Christina Centre matured in January, paid down in March - JV with Maguire, looks like a 1% loss was incurred by the Trust, but I'm not familiar with the story here).

Corporate Debt $2.6 billion, staggered maturies starting 11/1/09, 2010, 2012, 2014, 2016, 2017, and 2026.

Equity: $1.32 billion, trading at a discount to NAV of $1.8 billion, for whatever that is worth.

They look a lot better from a maturing debt standpoint than most of their peers, but there are better places to get long commercial real estate than any REIT equity right now.

Friday, August 21, 2009

Reader's Digest Bankruptcy

The Reader's Digest Bankruptcy makes you wonder about the 1Q09 7.67x DSCR on the senior mortgage on it's headquarters building in BALL 2007-BMB1, which has two extensions left with the next maturity at April 2010. Is it for real?

Hotel Burnham defaults

Crain's reports (sorry no link) that the Chicago Hotel Burnham missed it's July and August payments.

“We’re not in a desperate situation here,” Mr. McCaffery says. “There’s no intention on my or Barry Mansur’s part to let this hotel go.”

The problem, according to Mr. McCaffery, is that he can’t start restructuring negotiations until the loan falls into default. A CMBS borrower typically can seek relief only after a loan is transferred to a so-called special servicer hired to work out problem loans in the pool. That hasn’t happened yet with the Hotel Burnham loan.

The hotel could cover its monthly payments if necessary, Mr. McCaffery says, but “you can’t get their attention until you default.”

The loan is in GG10 and has a 0.81x NCF DSCR (despite what the story says about the "Bloomberg data" where the property is cash flowing) - the NOI DSCR is 1.01x for the 1Q 09 TTM.

Terranea Resort Defaults - Lowe's turns in the keys

The lender was Cascade (which may go unnoticed). It was driven by Corus, which is in the process itself of failing...

Lowe’s default to Kirkland, Washington-based Cascade came after Corus Bankshares Inc. of Chicago, Lowe’s construction lender, failed to supply a final $12.5 million payment to the developer, Diehl said. Corus said this month it may shut down as the bank’s nonperforming loans left it below capital levels required by U.S. regulators.
An $8 million loan to Lowe’s from the city of Rancho Palos Verdes has been delayed pending resolution of the company’s finances, Diehl said.
Corus didn’t fund Lowe’s loan because the Terranea project was “out of balance by millions of dollars” and the loan agreement required Lowe to raise additional equity capital before Corus made more payments, Dwight Frankfather, a Corus senior vice president, wrote in an e-mail. He declined to provide further details.
Calls to Cascade weren’t immediately returned.

A room with a king-size bed and ocean view showed a daily rate of $392 for an Aug. 21 through Aug. 23 stay, according to the Terranea Web site. The hotel is situated on 102 acres on the former site of the Marineland of the Pacific theme park, south of Los Angeles.

Mall of America bucks the trend

And they're doing it with promotional Twitter and Blog spots... David Bodamer reports

It's in 3 deals (interestingly, they show three different NCF numbers, two different payment statuses, and various occupancy and other stats - the pari passu thing isn't a problem at all ) within CMBS. We'll just pick the financials from one at random since they disagree - YE 2008 DSCR 1.47x, Occupancy 90%, anchors include Macy's (9.99% GLA, expires 8/2015), Bloomingdales (7.9%, exp 8/2012), and NOrdstrom's (7.61%, expires 8/2022).

TALF Subcriptions breach $2.2 billion, market unimpressed

TALF subscriptions came in a little lower than expected yesterday, but still, $2.28 billion of new liquidity is good.

Some blamed the rally for the lower subscription, but yields are still attractive. It could be that TALF is a little less attractive once you start looking up her skirt though.

Twin Cities CMBS Delinquency at 9%

Minneapolis/St. Paul Business Journal reports:

The commercial real estate services firm reports that $532 million worth of Commercial Mortgage Backed Securities (CMBS) in the Twin Cities, more than 9 percent of the $5.8 billion of CMBS loans in the metro area, are at least 30 days delinquent.

In the next 12 months, there are 49 properties with CMBS loans nearing $750 million coming due. A total of 87 properties are coming due in the next two years.

Wednesday, August 19, 2009

Commercial real estate gets worse

Moody's released their CRE Index update for June showing that prices had declined 27% of the last year, and 36% from the October 2007 peak - ouch.

USA today has an article out there about CRE that is fairly uninteresting in and of itself, but there is a great little fight amongst some of the commenters to the article - just skip ahead to the comments.

Saturday, August 15, 2009

Specials become Less Special

Fitch started taking whacks at the Specials, taking a CSS2- dump on Wachovia and slapping Wells Fargo with a CSS3+.

The funny part about it is that the downgrade was due to the fact that they put a guy with "no prior CRE experience" in charge of their special servicing operation. Wachovia and Wells are not 100% combined, yet, but even with the wave of defaults that are sure to come (especially in Wachovia-originated loans), they felt like it was a good idea to put a neophyte in charge. I have no idea who it is, but the prior head had 20 years of experience, and was well liked by Fitch.

Shortfalls Grow for PCV/ST

Peter Cooper (PCV/ST) had been consistently drawing $10 - $12 million out of it's debt service reserve, indicating a January 2010 default date when that money runs out. However, the poor strategy, poor economy, and high costs of litigation revolving around its misguided efforts to evict rent-controlled tenants have all contributed to a decrease in net operating income and cash flow. Now they are pulling out $19 million, leaving just $57 mm at the end of last month, and pegging the default to hit around October.

No one doubts a default is coming, the timing has been important to some investors, but now it's fair to say the timing is less than 1/2 a year by any measure. Now everyone is trying to determine who the mezzanine players will be - will they remain the current holders (some are strong and likely to take a swing at operating the property), will they sell to other operators, or will they all capitulate?

Next up, what is the senior mortgage worth? It's $3 billion outstanding, is in a number of CMBS deals, comprising as much as 20% of one. Some argue it's worth par - the mezzanine lenders are likely to take it over and operate without the legacy issues that plague the current owners, and it has a relatively low LTV of 56% to help insulate it from the insanely high price paid and the recent decline in prices. On the other hand, the one rating agency worth wasting time on, Realpoint, is looking for roughly a 30% loss on the senior mortgage (>$1 billion).

See prior posts, here. Let me know you're thoughts on this loan.

Distressed CRE by the Numbers...

Alliance Group has a well written synopsis of a recent NAR presentation on their website, here.

The most interesting chart is the distress by lender-type (i.e. CMBS vs. banks, insurance, etc.). I'm not sure the ultimate source, although it is sourced to Real Capital Analytics, but I know the numbers out of the Fed mix 30+ and 60+ delinquencies depending on which lender-type your looking at, which makes it a poor comparison. This data seems to be of better quality, and really shows the credit problems in CMBS.

WSJ "reports" More Hotel Jingle Mail

The WSJ put out an article on hotel defaults.
One major factor in the foreclosures: Many hotel loans are difficult to restructure because they were packaged into commercial mortgage-backed securities, or CMBS, which combine hundreds of property payments into one single bond. With scores of investors owning those bonds, it is extremely hard to cut a new deal to keep the hotel in owners' hands.

"There is no one person or two people that can really represent the interests of the borrowers and strike a deal," said Art Buser, chief executive of Sunstone Hotel Investors Inc., which is forfeiting one hotel and has put lenders on notice that it might do so with others.
This argument is getting tired. The investors own debt obligations of a Trust, of which, the hotel loan serves as collateral and has signed a contract obliging it to make monthly debt service payments as a result of putting a mortgage on their property. There is just ONE, 1, UNO, entity that they have to talk to in order to get debt relief or modify their loan - it is called the Special Servicer. Typically, the Master Servicer handles sending out bills and receiving payments, and as soon as it gets more complex than that, they engage the Special Servicer, who does heavy lifting such as loan modifications, foreclosures, appraisal and property management engagements, etc. The Special does not necessarily get engaged solely because a property is delinquent either - i.e. you can negotiate to prevent default! wow, that's surprising. Maguire did it just the summer with his Solana complex in Westlake - the master servicer said, and I quote, "transferring to special servicer for imminent default".

The borrowers (he lost the W San Diego a few weeks ago) are either lying to themselves, or have been lied to by whomever was charged with the task of contacting the servicer. There is precisely "ONE PERSON" who he needs to deal with. That is a simple fact. They're not even hard to find, and they're name and phone number can easily be looked up in your monthly statement (if you're Art Buser) or in Bloomberg on the CF page of whatever deal the loan is in, or on the free Edgar search site for SEC filings, or at the Trustee's free website (either Wells or LaSalle). So, just stop it with this tired argument. You're lying to us, you're lying to yourself, and you're lying to whomever your trying to get out from under your debt obligation with! Liar, Liar, pants on fire!

Further, hotels have always been the most volatile CRE sector - always. As one response to the article noted, none of this is a surprise. Hotels by their nature are susceptible to economic downturns (tight wallets equal less travel), are more quickly impacted by changes in rental rates (because leases roll nightly), and were way over-priced and over-levered. I don't have a crystal ball, but I remember a lot of conversations back in 2006 and many more in 2007 where we looked at hotel loans that didn't make any sense - we frankly couldn't believe the Extended Stay deal that Lightstone is "burdened" with now. It's hard to feel sorry for the investors because they were either too greedy or too dumb, but it's even harder to feel sorry for the sponsors - they're supposed to be professional real estate investors combing through the fine details of their contracts. They took out a CMBS loan in the first place aware of it's restrictions, but in favor of the easier process and lower rate, and now they cry foul.


Wednesday, August 12, 2009

JP Morgan unloading properties - WSJ

The WSJ reported this morning that JP Morgan is selling 23 properties as it consolidates operations, including the move into BS's former headquarters. Noted that they would likely have to lease back some of the space to get eyes on the deal, and also noted that they were not offering financing to the buyer.

The other bit of news on the front page this morning was more Lightstone/Extended Stay commentary - more of the same old thing, though. Although nothing new, it is ironic that both have the Bear Stearns tie in (Maiden Lane is one of the creditors due to their exposure to BS's old balance sheet).

Monday, August 10, 2009

485 Lexington Ave Changes Hands - WBCMT 2007-C30 & MSC 2007-HQ11

Bloomberg reported this morning that SL Green sold its stake in 485 Lexington (921,000 sq. ft. near Grand Central Station). The transaction values the property at $504.2mm, down from $635mm at issuance back in 2007 - or off about 21%. The article points to this as a "real wake up call" for NYC property values, but seems better than I would have expected...

The senior mortgage is split between $135mm portion in MSC 2007-HQ11 and a $315mm portion in WBCMT 2007-C30.

Maguire Sends Jingle Mail

Maguire, the company, started turning in the keys on several properties. In all, they have 40 CMBS loans worth nearly $5 billion in face value, and many are office properties in the heart of subprime originators and servicers favorite city of operations in Los Angeles and Irvine.

Maguire, the man, also owns a number of properties including Solana, a mixed-use development serving as collateral in JPMCC 2007-LDPX, which is requesting a loan modification following the loss of it's largest tenant, Sabre (aka Travelocity).

We know of a few CMBS loans that have had their keys turned in for sure, and we'll update this post if we learn more.

Deal Loan Size
GSMS 2007-GG10 550 South Hope Street 165,000,000
WBCMT 2005-C18 Park Place II 100,000,000
CSMC 2007-C4 2600 Michelson 95,000,000
JPMCC 2007-LDP11 Stadium Towers 83,200,000
GSMS 2007-GG10 Maguire Anaheim Portfolio (500 Orange Tower) 7,777,457
BACM 2005-3 Pacific Arts Plaza 132,000,000
BACM 2005-4 Pacific Arts Plaza 110,000,000

Friday, August 7, 2009

Move Along - Nothing to See Here ...

CMBS AAA spreads continue rallying strong going into next week where we have two CDO liquidations, both with CMBS collateral (both with AJ collateral, and one with significant AM colalteral).

Further down in credit is also starting to rally, but much less so, and trailing the AAA rally.

The CRE news flow has trickled to just a few drops and is mostly about funds starting up to buy "distressed debt" of various flavors, hardly any negative news.


Wednesday, August 5, 2009

SL Green Refinances the Graybar Building in Manhattan

The outstanding loan amount on the Graybar Building was $108,301,383 and carried an 8.45% coupon and had an ARD date of 11/1/2010 - it represented 19% of COMM 2001-J1A.

It was refinanced by TIAA Cref with a $145 million loan, but I haven't seen the terms - although they were likely an improvement over the old loan given the strong performance of the building (1.95x DSCR 3Q 2009) and low LTV (it was just 56% in 2001 when GACC underwrote the old loan, so it is likely comparable today considering appreciation and the cash they took out with the new loan).

Monday, August 3, 2009

Markit Antitrust Probe

Markit is so overeager when applying their license (much worse than, say, Bloomberg), they had the gall to try and prevent me from using their data once, even though I was an employee of one of the owners, my division was a customer, and the data was available on their website with no login. So, we got a bunch of lawyers involved, argued about it for two weeks, likely cost an analysts salary in legal bills, and they ended up agreeing that we could use it - since it was very clearly stated in the contract. What idiots... or does it make them geniuses?

Aug. 3 (Bloomberg) -- Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks, is under Justice Department scrutiny for potential anticompetitive practices ranging from requiring customers to buy bundled services to restricting which trades can be cleared in the $26 trillion credit-default swap market.

Markit told a swaps clearinghouse customer to purchase a pricing service as a condition for granting use of its benchmark indexes, said a person with knowledge of the transactions. Markit permitted use of its indexes by another clearinghouse only if every swap guaranteed by the company included a dealer, such as one of its owners, said other people familiar with those negotiations.