Wednesday, March 31, 2010

CMBS Delinquency Rate Accelerates - Now Above 7%

Trepp makes it seem as if this was unexpected...

Overall, the percentage of loans 30 or more days delinquent, in foreclosure or REO, jumped 89 basis points - the highest monthly increase since the summer of 2009. The positive spin on that number is that it was inflated by about 40 basis points by the fact that the $3 billion Stuyvesant Town loan in Manhattan is now considered "in foreclosure."

It's embarrassingly reminiscent of a MSM report at first, but there are some redeeming nuggets of information...

More recently, weakness has extended to the Paci c Northwest states of Washington and Oregon. Other areas for concern are the Carolinas and Colorado and, to a lesser extent, New York and Pennsylvania....
The assets of the 200 banks we predict will fail total $170 billion - similar to the total for 2009...
The Deposit Insurance Fund (DIF) is getting a boost from $46 billion of accelerated insurance premiums from banks, which was collected in the fourth quarter. The cost of failures during 2010 will likely eat up most of that sum.

Tuesday, March 30, 2010

NYC Office Market Falters

Bloomberg Reports:

Downtown Manhattan, where demand for office space began to surge three years after the 9/11 terrorist attacks, is about to lose its spot as the best- performing U.S. market.
Vacancies may exceed 14 percent of the area’s 87 million square feet by late 2011, empty space that’s equivalent to four Empire State Buildings and the highest rate since 1997

obviously this is all Goldman's fault - who else?
Goldman Sachs announced plans after 9/11 to move equity trading and research employees to Jersey City, New Jersey... and
...Goldman Sachs’s move to 200 West St. The company will leave behind about 2 million square feet at downtown buildings including 85 Broad St. and 1 New York Plaza.

Monday, March 29, 2010

Chicago Office Vacancy @ 4-Year peak

From Crain's

The noteworthy office spaces that came on the market include:

• 161,000 square feet at 540 W. Madison St., according to a spokeswoman for Bank of America Corp., which owns the building. In late ’08, North Carolina-based BofA leased 125,000 square feet to DRW Trading LLC, the first outside tenant in the building.
• 80,000 square feet at 200 S. Wacker Drive formerly occupied by Boston Consulting Group, which moved to 300 N. LaSalle St., developed last year by Hines Interests L.P.
• 75,000 square feet at 350 N. Clark St., a terra cotta classic where Mesirow Financial was based until it moved to 353 N. Clark St., which the Chicago-based investment firm co-developed last year.

As the building boom winds down, the vacancy rate for Class A space in newer, top-quality office building rose to 14.4% during the first quarter, compared to 12.5% during the fourth quarter and 9.5% during the first quarter of 2009.

Thanks in part to the expansion of 300 E. Randolph, the vacancy rate in the East Loop is the highest in the city, at 17.8%, compared to 14.7% during the fourth quarter and 11.9% during the first quarter of 2009.

The vacancy rate in the West Loop shot up to 15.8% during the first quarter, compared to 14.9% during the fourth quarter and 12.1% during first-quarter 2009.

Vacancies are lowest in River North, where the rate rose to 11.4%, compared to 10.3% during the fourth quarter and 11.3% during the first quarter of 2009.

LNR - The Experts

LNR's marketing department was up late last week churning out rosy nuggets for the Miami Herald and South Florida Business Journal. Just two months after hiring bankruptcy attorneys to figure out how to get themselves out of the hole that they are in (they just didn't do enough of those LNR CRE CDOs it turns out), we find out that they are selling a $1billion portfolio of small balance loans.

But wait, there's more...

The Miami Herald reports here, that LNR is one of the LARGEST CMBS firms and are the experts... they fail to mention the correlation between the firm's expertise and the whole "brink of bankruptcy" thing, but I'm sure its there. In all seriousness, there is going to be some real value to the new regime - just like at Centerline and Capmark who were sold for a song in recent months.

Realpoint Delinquency Report

  • 90+, Foreclosure, and REO grew for the 26th straight month - up 9% mom, 420% yoy.
  • PCV/ST still current...
  • RP is looking for 8-9% delinquencies in 2010, with a 11-12% potential.
  • $461.8mm new workouts and liquidations in February 2010 - 61 loans, average severity 47%. 17 of these ($222.2mm) had severities near or below 1%
  • Worst severities in Healthcare (44%) and Industrial (50%) - Multifamily had the highest defaults though.

Month Loss Severity
Feb-10 46.90%
Jan-10 48.10%
Dec-09 52.70%
Nov-09 45.70%
Oct-09 52.00%
Sep-09 40.60%
Aug-09 37.70%
Jul-09 31.30%
Jun-09 39.60%
May-09 35.20%
Apr-09 31.10%
Mar-09 50.70%
Feb-09 23.60%
Jan-09 37.10%

Sunday, March 28, 2010

Don't mess with JP Morgan...

Zerohedge reports there was an attempt on the life of the Silvergate whistleblower who just threw JPMorgan traders under the bus...

Saturday, March 27, 2010

Insurers give up on investing

Allstate Corp. got out of the stock-picking business by hiring Goldman Sachs Group Inc. to manage a $5 billion equity portfolio out of its overall $100 billion investment pool.


Deutsche Bank AG and BlackRock are the two biggest money managers for insurers, controlling about $200 billion in insurance assets each...

You know, Goldman and Deutsche and all those other Wall Street shops underwrite the IPOs - who ELSE would know more about them. Let's get the same guys who sell us stuff to decide on what stuff to buy us - better yet, let's pay them to help us choose to buy their products.

In all fairness, Blackrock and most of the other money managers probably make sense, and Hartford, and some of the others listed, really are bad at investing.

Floater downgrades coming

Not unexpected, but Fitch stated that they would finally start taking action on $27bln Floaters put on RWN in December...

My favorite is their sophisticated model analysis

loans will be assumed to default during the term if the stressed cash flow would cause the loan to fall below 0.95 times (x) debt service coverage ratio (DSCR) or at maturity if the loan can not meet a refinance test of 1.25x DSCR based on a property specific refinance rate of 8% to 9% on a 30-year amortization schedule

I love comments like that - makes you wonder what's on the inside of the model

Thursday, March 25, 2010

Hot Now! CMBS TALF list for March 2010

BACM 2005-1 A4
BACM 2006-4 A2
BSCMS 2004-T16 A6
BSCMS 2007-PW17 A3
BSCMS 2007-PW18 A2
CGCMT 2008-C7 A3
COMM 2006-C7 A4
CSFB 2005-C1 A4
CSMC 2006-C2 A3
GSMS 2006-GG6 A2
GECMC 2005-C1 A3
GECMC 2005-C4 A4
GCCFC 2005-GG3 A2
GCCFC 2005-GG3 A3
GCCFC 2005-GG5 A2
GCCFC 2005-GG5 A3
JPMCC 2004-CB8 A1A
JPMCC 2005-CB13 A4
JPMCC 2006-CB14 A4
JPMCC 2006-CB15 A4
JPMCC 2006-CB16 A4
JPMCC 2006-LDP8 A2
JPMCC 2006-CB17 A4
JPMCC 2007-CB20 A3
JPMCC 2007-LD12 A2
LBUBS 2008-C1 A2
LBUBS 2005-C2 A4
LBUBS 2006-C1 A4
MLMT 2004-KEY2 A4
MLCFC 2007-8 A3
MSC 2006-HQ10 A4
MSC 2006-IQ12 A4
MSC 2007-IQ13 A3
WBCMT 2005-C20 A7
WBCMT 2007-C32 A2

BACM 2006-5 A4
BSCMS 2006-PW13 A4
BSCMS 2006-T24 A4
BSCMS 2006-PW14 A4
CD 2007-CD4 A3
CWCI 2007-C2 A3
COMM 2006-C8 A4
CSMC 2007-C1 AAB
CSMC 2007-C1 A3
CSMC 2007-C2 AAB
CSMC 2007-C5 A3
JPMCC 2004-LN2 A2
JPMCC 2008-C2 A4
MLCFC 2007-6 A4
MSC 2007-IQ16 A3
WBCMT 2006-C29 A4
WBCMT 2007-C30 APB

GGP Related CMBS Downgrades

Moody's knocked down a few bonds that are not expected to recover interest shortfalls as a result of the special servicing fees being charged on the assets.

The Specials took different approaches on different loans. For instance, on Ala Moana, the special is charging no fees, and all interest shortfalls have already been recovered.

Northridge Fashion Center (GSMS 2001-GL3A) and Park Place (WBCMT 2005-C14), on the other hand, both have 1% work-out fees being charged by the special - for the rest of the loans now extended life. Obviously this will cause a nonrecoverable interest shortfall on junior bonds - in this case the rake legs.

Monday, March 22, 2010

Extended Stay creditors attempt to freeze cash from Prime Outlets

Ruh roh.

Line Trust Corp. and Deuce Properties Ltd., junior lenders to Extended Stay, will ask a New York state judge to prohibit Lightstone Group LLC and founder David Lichtenstein from transferring cash it receives from the sale, a lawyer for the companies said. Simon Property, the largest U.S. shopping mall owner, said in December it would buy Prime Outlets Acquisition Co. from Lightstone for $2.33 billion including debt.

Farmington Hills Retail - $31.3mm, 60% LTV, 10-year term, 6.5% Coupon

From Bloomberg:

Ramco-Gershenson Properties Trust (NYSE:RPT) announced today that it has closed on a new $31.3 million CMBS loan with J.P. Morgan secured by its West Oaks II shopping center in Novi, Michigan and its Spring Meadows Place center in Holland, Ohio. The $31.3 million financing represents a loan to value of approximately 60% for the two properties and has a ten year term with a fixed interest rate of 6.5%. Proceeds from the loan were used primarily to reduce borrowings on the Company's revolving credit facilities.

Sunday, March 21, 2010

RBS Securities hires Jablanksy

Brian Lancaster (formerly at Wachovia as head of structured products, and CIO there at the end) has added Paul Jablansky (historically a research analyst, but more on the portfolio/principal side at BOA, and most recently on the buyside at 400Capital) to the RBS strategy team.

In a version of the press release it notes their focus on strategists versus researchers, and their hires of Lancaster and now Jablansky reinforce that - these aren't guys who have been in an ivory tower the last decade or so. They've been behind substantial pools of investments, and I'm sure they've made both substantial mistakes and substantial home runs that should serve them well at RBS.

Saturday, March 20, 2010

Whale Hunting in Maui

WSJ reports that MSD is defaulting on the Four Seasons Maui mortgage - trouble should be expected given their partnership with Rockpoint on a number of properties at the peak.

MSD Capital LP, the private investment firm of Dell Inc. founder Michael Dell and his family, skipped the February payment on the debt as it seeks to restructure the loan, according to credit-rating company Realpoint LLC. The 380-room hotel's debt is split between two securitized mortgages, one of $250 million and one of $175 million.

Meanwhile, Beanie Baby tycoon Ty Warner's Ty Warner Hotels and Resorts reached a deal this week to extend by two years its mortgage on several resorts, including the 368-room Four Seasons New York, according to a person familiar with the talks. The mortgage had come due last January, but the four resorts pledged as collateral for the loan weren't generating enough cash flow to qualify for an extension.

Other Four Seasons hotels are working on compromises with their lenders. Mixed-use developer Millennium Partners LLC this month saved its Four Seasons San Francisco from foreclosure by bringing in Westbrook Partners LLC to pay $35 million of the hotel's $90 million securitized mortgage.

Four Seasons Dallas owner BentleyForbes LLC is negotiating with the special servicer overseeing the hotel's $183 million mortgage to revise the loan's terms. In the interim, the two entered a forbearance pact in which the special servicer has agreed not to foreclose as they try to work out a compromise.

In Hawaii, MSD Capital bought the Four Seasons Maui for $280 million in 2004. It then refinanced the property in 2006 with the two mortgages totaling $425 million.

Wednesday, March 17, 2010

And the winner is...

The Starwood investor group—including TPG and Five Mile Capital Partners LLC—is proposing to put in more than $600 million in new equity, the people said. The rival plan had proposed as much as a $450 million investment from Centerbridge and Paulson.

But what will happen to the gargantuan $4.1b CMBS loan?

The Starwood proposal also calls for some of the existing holders of Extended Stay's $4.1 billion first mortgage debt to continue holding their debt, known in financial circles as "rolling" their positions.

extend, and ...

The Starwood-led plan puts a higher value—nearly $4 billion—on Extended Stay than other estimates that have emerged during the process, according to people familiar with the situation. Upon its bankruptcy filing, the company estimated its value at $3.3 billion. The company's financial advisers have pegged its value to be about $2.8 billion to $3.6 billion.


It's not over yet, though
To be sure, the Starwood-led plan is still far from a done deal as Centerbridge and Paulson could increase their bid and other bidders also could emerge, the people said. And the plan still needs to be approved by the bankruptcy court.

CWCapital For Sale

Last week CMAlert noted that CWCapital was searching for an investor to take out Caisse de depot et placement du Quebec, which currently holds the controlling interest.

I'm refraining from including a link due to the annoying balloon pop up associated with the website where the story is - it actually blocks the content, and if you close it, it just comes back. The one sentence above is really the bulk of the story, and pop-up blocker will not block the balloon... I am but one man, and this is my protest.

Sunday, March 14, 2010

Loan Assumptions

Kenny Pratt posted some comments regarding loan assumptions a while back that has some good data points (for those of us that don't see that side of the business):

  • Can extend the closing as much as 30 days
The lender requires 45-90 days from the time they receive your non-refundable deposit, and your application, including the requested information about the proposed borrower.
  • Obviously you have to get approval from the Master and Special, but also the Directing Certificate Holder (aka Controlling Class). More on this later, but you have to wonder if, say Teachers, is interested in making this call when they become DCH on the Stuy Town deals (they hold a lot of Stuy Town AJs - it could happen).
  • No Downgrade Letter can be required
  • Legal opinions X 3 - Enforceability; non-consolidation, and REMIC
  • Release of carveouts will need to be approved (to get the seller out fully)
The bit about the extended closing deadline was news to me, but it's probably elementary to a lot of folks.

A much more detailed overview is here.

Friday, March 12, 2010

Stuytown Remit - no shortfall, yet...

From BBG, no link:

  • The paid through date is Feb 8, 2010.
  • Servicer advances full amount
  • CWCapital continues deed-in-lieu discussion
  • Remaining reserve is $29,625
  • No word on the transfer tax, appraisal, or environmentals

Thursday, March 11, 2010

Riverton Auction - $125mm

Trustee won at $125mm, next closest was $121.1.


6/1/09 Appraisal was $108k.
Outstanding Loan is $225k
2008 NOI was $4.4mm

Wednesday, March 10, 2010

575 Lexington Default Imminent - BACM 2007-1, BACM 2007-2

575 Lexington Default Imminent...
Silverstein and Calstrs paid $400 million for the building. The balance on a loan being transfered to so-called special servicing is $325 million, Fitch said.

The CMBS loan is
  • split into two $162.5mm pari passu notes.
  • LNR is the Special
  • YE '09 DSCR 0.71x; Occupancy at 89%; $14.4mm NOI (underwater at even tight cap rates)
  • 639,685 Square Feet. Includes Cornell University (16.63%; expires 3/2018).
  • Special Servicer notes that the Feb 2009 inspection rating was "Fair" and that the borrower is asking $70+psf rents on vacant space. Average Class A Manhattan Office is more like $60-$65 psf.
  • Unlike a lot of other NYC Office that is underwater, there is $0 in the Debt Service Reserve on this property. There is a small Replacement reserve ($432k) and a $6.2mm TI/LC reserve account.

Sunday, March 7, 2010

Island Capital buying Centerline's Special

The fund and servicing operations are going for $110mm...

Special servicers are responsible for managing troubled real estate loans and help oversee debt restructuring and negotiations with owners. Centerline was the special servicer on 81 CMBS transactions totaling $109.7 billion, and responsible for workout or resolution of 419 troubled assets totaling $5.5 billion as of Sept. 30, according to Fitch.

Seems cheap, right? The low-end fees off the specially serviced assets account for a little more than half the price ($50-60mm, easily, in year 1), and the par value of their fund has got to be $2-5billion, which is obviously underwater, but it's worth something. Let's just say they owned
3% of each deal ($3.29 billion in par), and half of it is cashflows 12 more months with a 5% coupon - $164mm per year, 25% cashflowing 12 months - $82.275mm. Someone should take all their deals, see how much of the B-pieces are still alive, and dig into this number more specifically, but I bet Farkas is getting a sweet deal here. Probably bought it at <1x EBITDA.

Crossroads Mall - Dead Mall Walking

Simon owned and defaulted.

Saturday, March 6, 2010


This is where you go to buy distressed loans, but only the ones you really don't want anyway. They also price CMBS loans in Bloomberg, but they do a horrible job at it. This partly due to the quality of the data in Bloomberg, but its also, more disturbingly a result of a blatant misunderstanding by DebtX.

Just to pick out one point, they'll take a pari passu loan part that represents 30% of the total senior mortgage, which has, say, a 50% LTV - they'll use 15% (30%*50%) to represent the LTV for the pari passu loan in question! Needless to say, I think their information is worth somewhere close to $0 in value, similar to the loans they broker.

So, when I read articles like this, it's only fitting that the journalist has an equally grandiose understanding of what she is writing about - and it was not even corrected by DebtX.

Loans sold during January went for 76.7 percent of par, the company said. That's up from 75.9 percent of par for loans sold during December.

DebtX based its data on the pricing of almost 60,000 loans in January. Those loans had principle of a little more than $700 billion.

That number doesn't reflect loans "sold", it just reflects the value from their pricing model of the 60k or so loans in the CMBS universe that they model, poorly. There was not 60,000 loan transactions in January - really?

Principles are what you should add to your bag each day on your way into the office before printing this kind of dribble without even a basic understanding of what you're writing about, and principal is the number of dollars, other than interest, that the bond holder expects to get back at maturity. Remember, princiPAL is your friend.

Maybe I was too mean - we all make mistakes.

Friday, March 5, 2010

LNR - will they FINALLY file?

Globe St.

666 Fifth Avenue gone to special

666 Fifth Avenue transferred to special seeking modification:
"Since the 666 Fifth Avenue loan does not mature until 2017, the special servicer must believe it is in the best interest of the trust to work with the borrower on a loan modification rather than taking control of the property in a depressed market and declining fundamentals," Mancuso said.

This loan does not cover it's debt service by a long shot, despite being 86% occupied (although a portion of that space is dark and likely at lower leases then today's market - in the $60s for class A in midtown). They're current monthly shortfall amount, is about $2mm, not small, but they do have a $70mm reserve balance - 70/2 equals 35 months until it dies at the current pace. The reserve balance is thanks in part to selling half the equity in 2008 to Carlyle Group, and it's not listed in the reserve report from the servicer (which has got to make you a little uneasy).

The big issue is the Orrick space which accounted for something like 232k sq ft at $45 psf will roll at the end of this month and they are leaving ($10.4mm per year in revenue, roughly). They have no firm prospects, but have 3 proposals out currently asking $70/psf (~$16.2mm revenue). Again, midtown class A is more like $60 psf (~$13.9mm revenue).

Can the servicer even allow a modification if there really is 3 years worth of debt service still in there? Are there any automatic ASERs associated with this event?

The total loan is huge - to quote the article, Kushner defined the top with this deal. $1.215billion is split into 8 different A-notes: Pari Passu loans A-1 & A-2 Notes ($124.5mm each securitized in GECMC 2007-C1), A-3 & A-4 Notes ($197.5mm each, securitized in WBCMT 2007-C31), A-5, A-6 & A-7 Notes ($142.75M each, securitized In WBCMT 2007-C33), and an A-5 Note ($142.75mm). These deals were brought to you by Wachovia and BoA, if anyone is keeping track - blame Charlotte this time.

There is SO much capital chasing real estate, that

Freddie is publicly touting a mezz/bridge loan provider tie-in to not only provide new mezz debt, but also invest in B-Pieces.

Hotel Tango Bert

Tuesday, March 2, 2010

Fink on Stuytown

From dealbreaker:

Today, the investors who bought equity in the [Stuyvesant Town] deal have also lost their money, including major BlackRock clients—most notably the $200 billion California Pension and Retirement System (calpers), the nation’s largest pension fund, which effectively lost $500 million. At press time, calpers was weighing whether or not to retain BlackRock as a real-estate adviser.At the mention of these blunders, Fink, who has been sprawled in his chair, suddenly stiffens. His voice takes on a harsh tone that is leavened only by his visible anxiety. “When you manage money, you are going to make mistakes. You are not going to be 100 percent perfect. Our job is to minimize those problems, to cauterize them,” Fink says, his voice rising. “We’re not perfect, and I’ve never said to anyone that we are going to be perfect. Our investors had all the information we did and they did their own due diligence.” He exhales deeply. “Our real-estate division is struggling because of bad performance, and we’re making changes. I don’t care if the whole industry blew up, our job is to do better than the industry, and we didn’t in real estate,” he says. “I am not making excuses. I lose sleep over these problems.” The Stuyvesant Town loss was “an embarrassment,” he says. Then his voice drops to a whisper. “I mean, my mother gets her pension from Calpers.”

Partial IOs - DB Style

I want to be very clear - I do not, have not, and never will work at Deutsche Bank in the foreseeable future. However, they issued a report today on Partial IOs, just a few hours behind my earlier post. Although their imagery is simply not as pretty as mine, they did have some interesting numbers.

Delinquencies are substantially higher on post-reset Partial IOs

, which is not unexpected, but still nice to see in a graph.

They also point out a few other facts, some of which may be obvious, but nonetheless:
  • Virtually all Partial IOs remaining are 2005 - 2008 vintage loans.
  • About 25-30bln partial IOs per year over the next 3 years. $80 bln total
  • 2012 will likely be the hardest - virtually all of these are 5-year partial IOs from 2007 - yuck.
  • Average increase - 21% (to my, roughly 20%)
  • They counted 350 loans worth $5.3 billion that will reset with a <1x>
  • $1.7 billion this year, $1.5 billion in 2011, and $2 billion in 2012
Their numbers agree with mine, its always nice to see your numbers actually match someone else that you respect. BUT, wow, their graphics guy needs a dose of caffeine. Their charts hurt my eyes.

Bottoms Up?

Numerous sources have been hinting at a bottom in CMBS, including Barclays who said,

From a macro perspective, an uptick is a clear positive, as it suggests that the gap between buyer and seller preferences is narrowing and could signal that some believe a bottom in prices is approaching.

Housingwire noted that the CPPI is now down 44% on average, and 58% down for distressed properties - back to 2001/2002 levels. They also noted that the insurers bid will come back now that they can rate their own bonds - maybe for new issue, but not so much on legacy assets would be my guess.

They also note the coming risk of partial IO bonds, and this is a very real threat. Up until just last month, we were averaging about $2.5 billion in partial IO rolls each month, but that just spiked above $3 billion in January, and touches $4 billion by July. After a loan rolls from partial IO to amortizing, the average increase in debt service costs is around 20%, but lower coupon loans can get substantially above that, and amortization terms are all over the place. Although CMBS loans were ideally on stabilized properties, the worst offenders of proforma underwriting were loans structured as partial IOs - the lender would underwrite rents in year 5 to the necessary level, and to make it cashflow, would just not require amortization payments until month 61 (as an example).

As a more specific example, take a look at the largest loan to roll to amortizing payments this year, Grand Plaza, $86.5mm, in CD 2007-CD4. That property generated NOI of $6.4mm, and had debt service of $5.1mm last year - the new annual debt service will be approximately $1mm more at $6.1mm. The property cashflows at that level, but the debt service increased by 21.5%, and the property is already underwater at anything above 6% cap rates.

In all fairness, even last year, we had about $30 billion in partial IOs roll, which is about the same for this year, 2011, and 2012.

The biggest near-term concern is the expiration of TALF this month, but Citi made a very good point last week that repo lending has made its way back for most TALF-eligible bonds, and is competitive with TALF financing. They make a linear argument, but fail to explore why anyone would risk TALF if they could get a better deal in the repo market. TALF is clunky, and does not curry favor with either party like a nice repo line can.

Several folks have pointed to the 100 or so bps of tightening over the last 3 months, but in the grand scheme of things, the market has been pretty flat since last fall.

So, a bottom? maybe, but I think it's too early. We still have a lot of pain to work out in the pipeline, LNR still needs to file for bankruptcy, and we're only just starting to see a deluge of defaulted CMBS properties getting sold at viable prices. I don't think there is much to gain by holding a position through March just for the carry, but I also don't think we should all just sell all MBS like PIMCO has done.