Sunday, November 29, 2009

Comings and Goings

Honestly I wasn't around last week and I missed some of the excitement. It sounds like the Dubai World fiasco caught some market players by surprise, although it is not clear why anyone would be surprised that a resort surrounded by barren desert with man made ski resorts, gargantuan man made islands in the shapes of palm trees and continents, and really not much else - all conveniently in the middle of a bunch of conservative islamic states (although Dubai is an exception, I know) that would poo-poo all over anything Europeans or Americans would consider fun. Further, it's just 7 hours away (in your Gulfstream, 20 hours with layovers in Cairo or Moscow if you fly commercial) from any place that has a base of wealthy enough citizens to actually enjoy such hoopla. Really. Really, I don't have a crystal ball, but the very first time I heard about The World, I wondered to myself how that was ever going to be successful. Maybe it has been, but its just a little off-the-charts insane. All that aside, Dubai World owns a number of U.S. assets, mostly through Istithmar. A lot of the properties are in CMBS deals, most are "trophy" assets, and many are struggling. If you're up to your eyeballs in CMBS you already know this, but even if you're not, you'll recognize properties they own, such as Mandarin Oriental, 280 Park Avenue, and the W Hotel in NY. Expect to see these in the news in coming weeks as journalists recover from their tryptophan induced comas. Some of the better journalists may start digging into the transfer of assets and executives from Nakheel into Istithmar just a few months ago - there is some dirt worth digging up there.

Also, over the last couple of weeks, GGP has been making headlines. All of their loans maturing over the next 4 years have been extended to at least 2014 - we took a closer look at that here. That is substantially all (92.22%) of their CMBS debt outstanding, so if you have GGP exposure and you own current pay or next pay bonds, you may have just got slapped in the face - even worse if you bought the bonds with a 3-year TALF loan and now you have a maturity at least 5 years away. On the other hand, most longer bonds and IOs both benefit from the news.

Maturing Debt in Billions:

The more important GGP news is the announcement from Simon that they have hired advisers to look at buying all or part of GGP. We really went all out and even made a cute little map to show the overlap between Simon and GGP, and after that we started talking to folks and realized we should have included Westfield too. Sounds like we are more likely to see GGP get split up between Westfield and Simon, and maybe some other players. We'll come back to that and update it when we have time. I do think we'll see a lot of loan assumptions, especially given the terms on the newly extended low coupon loans on GGP's portfolio. That is good in terms of the loans having a better sponsor. Either way, I think we'll see GGP come out of bankruptcy before Christmas, and our equity stakes in the bankrupt company will continue to move up while our CMBS exposures will improve in terms of credit quality.

Fitch came out with a report on European CMBS (no link) that was not that revealing, but just reiterated the fact that CMBS on that side of the pond is very different than on this side. They have triggers based on periodic property valuations, shorter terms, floating coupons, and they're just really struggling.

Not sure what happens this week, but expect to see more selling as traders continue taking profits to shore up their year-end bonuses and real money buyers wait to see what their CMBS allocations for 2010 will be.

Heard retail sales for Black Friday were up from last year. I spent all day shooting skeet and trap with a very nice Beretta 391 gas powered semi-automatic 12 gauge with a complex adjustable recoil pad while you nancies stood in line for a good deal at Wal-Mart or wherever, so I'll rely on your feedback regarding how busy retailers were.

One final note, where have all the researchers gone? We realized today that Darrell Wheeler must have left Citi, and he was definitely there just a couple of weeks back. No word on his current location. Edwin Anderson left Bank of America earlier this year, Lisa Pendergast landed at Jefferies (but we're either not on her list, or they're not publishing), and Howard Esaki's current location is unknown. I think the only one that stayed put, kinda, is Roger Lehman at Bank of Amerillwide. I think Masumi Goldman may have stepped out of this market too. If they all changed careers out of CMBS, that probably doesn't bode well for the future of the CMBS market.


Concrete Jungle said...

I just re-read what I wrote. Man, I can really write some good run-on sentences complete with grammatical errors - I'm not changing it though.

crabsofsteel said...

Where indeed did all those research people go? After shoving loads of worthless bonds down the throats of their clients, do we really want to know? The market has barely begun to realize that appraisal reductions on delinquent loans are going to cut off cashflow to AJs in more than a few deals within a year's time (JPMCC 08-C2 is almost there already). It wasn't very long ago that these guys were advising their clients to load up on AJs.

Anonymous said...

Darrell Wheeler is supposedly going to Amherst. You forgot Alan Todd (A-Todd) at JPMorgan, Aaron Bryson at Barclays, and Marielle Jan de Beur at Wells Fargo.

crabsofsteel said...

A-Todd should be named A-Todt. Todt means "dead" in German. That is where your money is if you listened to this shill.

JPMCC 08-C2 represented, according to public statements, a return to better underwriting standards. In fact, they cleared out all the loans they had already made and couldn't put into a deal in the previous two years.

After two loans reprenting 20% of the last CMBS deal JP did blew up within FIVE months of deal issuance, A-Todt wrote a damage-control piece just over a year ago, where he said:

"Although these two loans combined account for approximately 20% of the deal, triple-A
tranches remain well protected even under fairly draconian default scenarios."

Anyone who takes this seriously deserves to lose money.