Monday, July 26, 2010

Realpoint Delinquency Report

As expected, delinquencies got a little worse in June (note the RP report has a typo in the first table regarding the reporting month) with 7.702% of the total CMBS universe now delinquent (versus 7.27% in May, and 6.91%). Every bucket worsened expect for 60-89 day, which decreased by 31% (only half that decrease is due to loans going into the 90+day delinquency bucket though!).

Realpoint is now looking for 11-12% delinquencies by year-end. Seems pretty rosy to me, but the year is quickly passing us by.

Total delinquency at $60.45 billion.

Special Servicing - $88.6 billion (11.29%)

Average 2009 Loss Severity - 42.1%, including fees 62% (per RP)

Surprises: Hotel Average Loss Severity 2nd lowest at just 44.1%! Even taking off the tails with <2% loss severities Hotels are just at 61.3% (the third lowest of all property types?!? preceeded by RETAIL!! and Healthcare)

There are some pretty charts in there too, and a ton of additional information. Go to - it's a free report.

Defaults to increase in 3rd quarter

Housingwire reports

Analysts at Deutsche Bank found that the number of new transfers into special servicing will continue to outpace commercial loan workouts. But once properties are ready for liquidation, valuations on commercial real estate are missing the mark, according to Deutsche Bank. More recent appraisals are needed on these properties to narrow the gap between liquidation expenses and proceeds.

The analysts projected an 18% delinquency rate on CMBS.

There we have it - a realistic delinquency rate - 18%. I believe that number.

If you've been watching the MSM, the WSJ, CNN, Fortune etc. all had articles over the last couple of weeks talking about the "accidental recovery in CMBS", and shiny unicorns that shit rainbows that taste like skittles, etc. etc.

I almost sold all CMBS just based on the CNN article alone - they highlight Hartford for pete's sake. You see something that rosy, written by someone who obviously knows little about the world in general and less about CMBS, highlighting "good" companies that were really the "bad" ones - well, you just have to interpret the opposite of how they intend to get anywhere close to reality.

Monday, July 19, 2010


Innkeepers filed for bankruptcy, in front of looming refi problems...

Forty-four of the properties are Marriott-flagged, and they've agreed to forbear any claims so long as 23 are "improved". In addition to the senior mortgage in LBUBS 2007-C7 AND LBUBS 2007-C6, there is also a $50.7mm loan from Five Mile, and the new agreement calls for a $17mm loan to improve the Marriott properties. Equity is wiped out in the plan.

From Bloomberg:
The hotel company, laboring under $1.42 billion in debt, holds interests in 72 upscale and midprice extended-stay hotels operated under brands such as Marriott, Hyatt and Hilton. The hotels are spread across 19 states and Washington, D.C.
took on hundreds of millions of dollars in debt in a $1.5 billion buyout by Apollo Investment Corp. Apollo Investment, which receives advisory services from an affiliate of private-equity firm Apollo Global Management, purchased the hotel company around the top of the market in 2007. Apollo declined to comment.

and then the journalist just takes a nose dive and loses all credibility:
The loans were then carved up and sold to investors as collateralized mortgage-backed securities.

Really, he has a couple of quotes after that which might be worth reading if the C in CMBS stood for "collateralized".

Friday, July 16, 2010

BofA Hires Kok, Eyes 3-Way CMBS Offering - Commercial Mortgage Alert

That was the title to last week's CMA article - It stands on its own without further comment.


The AM and AMFX bonds on MSC 2006-IQ12 were hit with interest shortfalls last month equal to approximately 20% of the interest due, and I'm pretty sure that is a first for this high in the capital stack. IQ12 is part of CMBX.3, as well.

The shortfall is a direct result of the 912-unit, Memphis-based, New Horizon Apartments loan, which took a 100+% loss severity, wiping out all the classes up through about 1/2 of the N tranche.

Takeaways: CMBS are chunky, and you should probably review you your ISDAs this month.

Wednesday, July 7, 2010

Park Avenue Plaza trades at $570 psf

Fisher Bros. sells 49.9% to Rockpoint, 1 day after one special dealer heavily markets the associated CMBS bonds and makes clients beaucoups of money.
It's tough writing sell-side research all the time. No one really appreciates you internally, it's impossible to gauge your impact on revenues, you're underpaid, and everyone's a critic. People make mistakes too, and you have to forgive them the first time around although sometimes the forgiveness must be delivered in a very harsh shell so that the mistake is not repeated. I get all that.

That being said, Deutsche Bank's Frankfurth-based research group put out a piece on CRE yesterday title "Commercial Real Estate Loans Facing Refinancing Risks; CMBS only a part of a growing problem" that was really embarrassing for them in my opinion. The conclusions, the title, and overall gist of the paper is not incorrect - in fact, it's kind of obvious in the "duh, we have a refinancing wave coming in CRE both in the US and abroad!" kind of way. Hopefully after 3 years of this you're already familiar with the issue - probably more so than the authors at DB!

There is no flow to the paper. Its so bad that its hard to read. One paragraph is about the US, the next is Germany and the UK, and then there's something about Paris, and then you have to loop back and re-read the last three paragraphs to figure out what they're talking about. US CMBS and CMBS from the other side of the pond pretty different animals - and you can't switch back and forth between describing you're typical longer term fixed-rate US Conduit deal and a shorter term UK floating rate deal.

They go to some great lengths to compare ratios between the countries. For instance, they note that in Europe, CMBS only accounts for 8% of the CRE loans, while in the US the ratio is closer to 25%. Okay, what is that supposed to mean? Your Euro CMBS deal is full of short-term floating rate paper, your US is full of 10 year (mostly) fixed-rate paper. Your Euro CMBS loans are structured more like a US regional bank's CRE development loan than anything in the US CMBS market. They don't really come to a conclusion either way, but do infer that "risk of turbulence for CRE would be smaller than for housing" because fewer CRE loans were securitized. Also, without looking, they're estimate for the Resi market seems vastly incorrect.

Pages 5, thru 8 are just completely mind boggling. Under the section where they "define" CMBS, they start off describing a European structure and you assume they're purposefully not including US CMBS yet, then you start seeing a few references to US CMBS that don't show up in European CMBS, and you realize they've just mixed and matched the two as if they were that similar. Somewhere on page 6 it just leaves the realm of reality and I switched from reading to scanning.

Then there are sections just begging for some actual "out-loud thinking" on their part. On page 10 they discuss how 53% of US CMBS maturities in 2010 have extension options, but that percentage drops to 10-14% the subsequent two years. Do you want to know why? Well don't bother looking in the report. Maybe its obvious (it is to me), but I'm guessing if you ask the author, they won't know the answer. They come to the conclusion that things aren't so bad in 2010 - nevermind that the rest of the CRE mortgage market (the 75% that is not CMBS) is virtually all short-term debt maturing now - not in 2016 and 2017.

So, I'll stop picking on them. This is not the worst piece I've ever read, but it does remind me of a similar article in early 2008 when Goldman's Global (non-US) desk produced a report titled "US Commercial Real Estate: High Losses, Slow Burn" that was so factually inaccurate and so obviously authored by someone with zero experience in the US CMBS market that they later had to retract and republish an addendum piece (that still was unimpressive and full of errors).

Tuesday, July 6, 2010

Midtown Class A rents at $63.24 psf


Realpoint Delinquency Report

Realpoint released their delinquency report today - guess what ?!? Delinquencies increased.

They did note that their "heavily stressed scenarios" put end of year delinquencies in the 11% to 12% range - this is similar to our most-likely-and-definitely-expect-it-to-exceed-those-levels scenario.

They have several bullet points on balloon default risk - that has been the theme in the street research the last few weeks too, but I don't see what has changed in recent months. Obviously we're going to have some real balloon default risk, especially on 5 year loans from 06/07 vintages. Next year seems like the first real tough year for maturities, and 2012 is going to be a bloodbath. Deutsche Bank was out with a report on maturities too - I haven't fully digested it yet, but the initial scan showed they noted several times that CMBS is a relatively small part of the global CRE financing marketplace. Hopefully they also note somewhere how big the maturity issues are outside of CMBS, because that seems very dire starting in 2010... Especially in the US with balance sheet loans by small & regional banks.

Big picture takeaways: Hotel really can't get much worse. Optimism seems to be the generally theme. Interest in vacant retail space is up. Multifamily starting to see a hint of improvement. Office markets expected to see growth in 2011. Loss severities >1% averaged 68%.

Thursday, July 1, 2010

Second & Seneca - BACM 2007-3

Current Occupancy 70.16%, Class A & B office buildings, transferred due to WAMU vacancy (16%). Appraised $121mm on 8/31/2009.

Will update with more details when available.

Bloomberg: (no link)
The Seattle building, known as Second & Seneca, has been about 15 percent vacant since Washington Mutual Inc. left after its 2008 bankruptcy filing, according to data compiled by Bloomberg. The loan was transferred to a special servicer last year to facilitate restructuring talks.
Tishman Speyer invested $15 million of new equity, according to a person with knowledge of the matter who asked not to be identified because the announcement was not yet public.
The debt restructuring “ensures that the property has sufficient capital to lease the property to stabilization and create long-term value,” said Jerry Speyer and Rob Speyer, co- chief executive officers of Tishman Speyer, in an e-mailed statement. The debt matures in 2017, according to the statement....

Tishman Speyer, based in New York, bought the property for $230 million in April 2007 and it was appraised at $125.2 million in 2009, according to King County property records. The loan was bundled into a commercial mortgage-backed security.
The property at 1191 Second Ave. includes a 436,752-square foot (40,576 square meter) Class A office tower and a four- story, 74,712-foot building and data center. The property was built in 1991. Safeco Corp., a Seattle-based home and automobile insurer, is the largest tenant.

Canyon Park - CarrAmerica Portfolios A & B

Reggie Middleton has a piece about commercial real estate on Zerohedge today, and there is a short snippet about Canyon Park that includes a PDF with pictures of the empty building (and the photographer on his bike in a few shots ;). At least some of the buildings inside Canyon Park are in the CarrAmerica Portfolios in CGCMT 2006-FL2 with a fully extended maturity date of 8/9/2011 , and one of them (Nexus - Canyon Park Laboratory -- LBUBS 2001-C3) has a 12/11/2010 ARD date.

Note the B note on the CarrAmerica loan serves as collateral in the CAN1, CAN2, and CAN3 rake legs on CGCMT 2006-Fl2.