Tuesday, January 26, 2010

Curbed RE: Stuy Town

Headline says, Even God is Losing Money on Stuy Town. Good stuff.

The list of mezz investors is typical of some of the worst CRE investors out there. You look at any of their portfolios, say Hartford, more AJs than almost all other insurers, more CMBS as a % of total portfolio too, more small balance CMBS exposure, more MEZZ deal exposure.


RJ said...

where do you find Hartford's CRE investment track record? That's interesting.

Do you really think the AJ's are the worst exposure in that list? I'd submit that the single borrower deals are far riskier in light of the GGP ruling.

crabsofsteel said...

RJ - Insurance company portfolios are disclosed to the SEC. Single borrower deals are less risky in that you can identify the credit.

RJ said...


Depending on the collateral of course, I may be happier with diversified borrower base than with a single sophisticated borrower with a beefed up legal budget.

crabsofsteel said...

Diversification is the foundation of rating agency models for conduit CMBS deals. However, there are almost no borrowers or tenants with a AAA corporate rating. It seems unusual that you can rate most of a deal AAA if most of the underlying credits are less than AAA or not even rated. In CMBS, most of the time their identity is not even disclosed. So, sure enough, those AAA ratings are now getting dropped like hot potatoes as skeletons come out of the closets.

RJ said...

I would agree that diversification is a key factor for the models. However, I think the AAA ratings stem from the subordination structure of the tranches rather than the strength of the borrowers.

Unfortunately both of those factors conveniently ignore the underlying real estate.

crabsofsteel said...

RJ - You hit the nail on the head. You as a CMBS investor do not have access to the loan file, the actual mortgage docs, to see what you are loaning to. Underwriters thus tailored loans to satisfy rating agency diversity criteria, jamming them with loans where data fields didn't cover full disclosure. 2nd liens? Not a problem, if you weren't a top 10 loan written up in the term sheet. Ground lease? Back up the truck and shoot it in. Previously bankrupt borrower? Etc.

Concrete Jungle said...

In addition to being public (and relatively easy to parse through the SEC filings and then identify the deals with Bloomberg's API or your third party of choice), you can also buy the data from Thomson Reuters that is pretty good quality.

I have a report from one of the banks that strat all their (Ins. Co.) CMBS holdings. It's a little old, but I'll find it and post a link.

I definitely don't think AJs are the worst exposure in any list - just saying they had more than others (who tended to have more A1s-A4s).

Concrete Jungle said...

Of course I found it as soon as I clicked reply:


That image is from a Citi report pre-Wheeler jettison.