Wednesday, June 16, 2010

Western Michigan - Bottomed Out?

I wouldn't even click the link to this story, the site is worse than the story.

The guy being interviewed is saying there is a bottom, now's a good time to buy real estate in Western Michigan (I know, I threw up in my mouth a little too), and most CMBS loans are five year loans. That's the gist of the article.

So... There's around $2 billion in properties with outstanding CMBS debt in Western Michigan. I'm defining that as the big cities including Lansing, Kalamazoo, Grand Rapids, and Muskegon - not scientific, but a decent sample. These range from a Taco Bell in Muskegon in a Franchise deal from a 1998 deal, to a $25mm office building in Kalamazoo in a recent vintage deal.

5-year loans?

The weighted average term of these loans was almost exactly 10 years. Just 5.19% of the loans had terms of less than 10 years, and 4.53% had terms from 12 - 15 years. I'm not sure where the 5-year loans he's referring to are, but not in the sample I looked at.

Most maturing in 2012?
3.72% mature in 2012. Two are seven year loans, the remainder are 10 year balloons. No five year loans in this group.

23.59% mature between now and the end of 2014. All but 5 are 10 year loans, meaning they were underwritten quite some time ago, before the peak, and are likely not even underwater even though they are in Michigan!

5.47% have already matured, are in default, or have been modified.

A lot of the points in the article are spot on. The sponsorship in CMBS deals is all over the map - it's not like a local bank where most of the CRE is transitional, short term, and sucking wind; nor is it like the insurance co. portfolio loan which is typically high quality - CMBS is a mix of both. The proverbial shoe has not dropped yet in CRE to his point, however, let's give it a little more time.

The property types in these cities are heavily focused on MF and anchored retail. Over half the properties were built between 1891 and 1989. 29.69% of them are on the watchlist, 5.12% are with the special (half the national average), and 5.43% are delinquent (again, nearly half the national average). They know their local market better than I do (I've never even stepped foot in the entire state - so I know nothing), but I tend to interpret these numbers as pointing to a late comer that has more pain to be felt, rather than one that is rebounding or bottoming out...

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