Wednesday, May 12, 2010

Sell Mortimer, Sell!

Specials are coming out of the woodwork with CMBS loan portfolios for sale. First it was a hundred million there, a hundred million here, then LNR comes out in March with the $1billion portfolio announcement and the actual list in May (2 months?). Now we're seeing a $500mm and $300mm lists since the LNR lists from two others...

This is going to hurt those credit IOs. Well, we're going to see some accrued interest recapture real quick and some realized losses real fast - that'll help the lower mezz that are cusping on shortfalls but not potential principal loss and the short AAA stack - but that'll be followed by much shorter workout periods on loans.

Going into this CRE disaster the typical work out period was a little over 1 year (from 1st default to sale of asset), then the world changed and we all assumed it was going to average around 2 years, and now ... we need to focus on 2 month resolutions on already defaulted mortgages, and 6-8 month resolutions on newly defaulted loans.



crabsofsteel said...

10%+ of the universe is with the specials, that's $80B. If $2B gets auctioned, will that really move the needle on workout times all that much? Also you are assuming the auctions don't fail. Aren't too many places who can re-underwrite much less take down $1B of non-performing CRE loans

Concrete Jungle said...

I think it might move the market. We've had less than $6 billion in loans with a realized loss since January 2009 through April 2010 (not including mods), and we're about to see 1/3rd of that inside of 2 months.

I am assuming the auctions don't fail. I've bid on some of the assets. For instance, I bid $2.5mm on a MF in the SE last week, next highest bid was $3.5mm, and it did not transact because the bids were too low... There are too many "distressed CRE" funds out there that need to deploy dollars, and they're running up against their investment periods ending.

Also, I think we'll see that there is plenty of money to be lent chasing this as well. Within 24 hours of the deal being publicly announced, I talked to two different bankers at two very large institutions, working on a loan package to take the entire portfolio in question down. I talked with a guy this week who was offered 100% non-recourse financing with an equity kicker from a blind pool mezz lender on one of the assets.