Friday, December 30, 2011

Blue Light Special - Sears Closing List

I like Eddie Lampert. I want him to win. How can you not like the story of how he got to where is, well, at least up until about 2003-ish when he bought K-Mart, followed a year later by the Sears acquisition. In all fairness, he quickly shuttered hundreds of stores and turned the new company into a cash cow in the short-term, but ever since the stores have allegedly (I haven't been in a K-Mart since at least 1995, and not in a Sears since at least pre-9/11 - if ever) suffered from a lack of adequate CapEx and ever-changing leadership. Never mind that the retail environment is just tougher today than it was a few years ago.

Then he missed an opportunity to capitalize on the value of the real estate at the peak of the market. Even in back in '04 when the Sears merger was underway, splitting the company into an OpCo/PropCo strategy where you would split the retailer into a Real Estate company (and leverage it up with CMBS debt) and an Operating Company made a lot of sense. The debt likely would have been fine today as well, given that they would have signed some long-term leases (of course, the OpCo may be stuck with lease payments if it shuttered 120 stores...). Within a few months, KKR/Bain/Vornado were divvying up ToysRUs in precisely the same manner.

Well, I'm still rooting for the guy. He announced over the break that they're closing 100-ish stores and they released a list of 80 closures in the last couple of days. They're list is in a PDF and doesn't copy out cleanly, so I pasted a complete list at the bottom of this for anyone who wants it.

CMBS Exposure - Please note that this is not an attempt to be a thorough or complete list, just a quick snapshot. There is a HIGH probability that there are some missing or incomplete data in the list below. The analysis simply consisted of pulling every property with a tenant with a name like "%Sear%" or "%K%Mart%" and matching against ZIP codes on their closure list (Zip codes change, Annex A's misspell stuff, etc.):
Deal Loan Name Loan Status PCT of Deal
MSC 2007-IQ14 Ershig Mall Portfolio Perform(w) 0.83%
GMACC 2004-C2 Shoppes at St. Lucie West Grace(w) 2.06%
MSC 2005-IQ10 69th Street Philadelphia (I) Grace(w) 4.43%
JPMCC 2006-CB15 Lightstone Portfolio Del 90+ ss 3.31%
MSC 2005-T17 Coventry Mall Del 30 ss 9.26%
CSFB 2002-CKN2 Crystal River Mall REO 4.16%
MCFI 1996-MC1 Kmart/Rocky Mount REO 100.00%
BACM 2005-6 Island Walk Shopping Center Perform(w) 0.50%
WFDB 2011-BXR BXR Loan Perform 100.00%
CSFB 2001-CKN5 Manhattan Plaza In Foreclosure 2.45%

In the table above, the formatting kept cutting off columns - if you'd like the complete mapping of columns shoot me an email at

Full Closure List (Source)

Also, CRE Console put together a little map using one of my favorite free online mapping tools here. Over at Retail Traffic, Elaine Misonzhnik postulates that the real estate may be in high demand at many of these locations.

Monday, December 19, 2011

All is Lost!

From Bloomberg.
More than half of commercial mortgages packaged into bonds in 2007 and coming due next year may fail to refinance as maturities reach the most evah and lenders pull back, according to Standard & Poor’s.
Nearly 30% of 2007 CMBS loans carried 5 or 7 year maturities...
About $55 billion of property loans sold as securities come due in 2012, with $19 billion of those originated in 2007, S&P analyst Larry Kay said in a report today. The five-year mortgages have a 50 percent to 60 percent likelihood of failure to refinance, the New York-based analyst said.

Next year will “usher in the first major wave of maturities from the 2007 vintage, which were issued during a frothy period at the peak of the market,” Kay said.

Is the Wave of Mutilation finally upon us? Some say yes...
“Retrenchment in the capital markets and among other lenders in the third quarter of 2011, which has continued into the current quarter, dims the refinancing prospects.”

So, it's kind of a big deal - no money is being lent, the loans maturing contain more underwater crap than ever before, and any money that is being lent is under onerous terms :(

Loans underwritten during the peak five years ago will be challenged by tighter lending conditions, limited borrower equity in the buildings and the large size of loans relative to current property values, S&P said. Property values have tumbled 42 percent since 2007.

Lenders are willing to write a mortgage for a maximum of 70 percent of a building’s value, meaning about 63 percent of loans taken out at the height of the property market bubble will be hard to refinance unless the borrower injects additional cash, S&P said.

Friday, December 16, 2011

666 Fifth Avenue Modified

They managed to get 666 Fifth Avenue modified down into senior $1.1 billion senior note and the rest into a hope note, a new maturity date in 2019 (from 2017), and the rate dropped to 4.5% from 6.3% - all according to a Bloomberg article today.

In other news, Kushner was seen outside the Uniqlo store shopping for Christmas gifts for his new kid on

Monday, December 12, 2011

MSC 2007-T25 - Village Square

Village Square REO sale takes out 10 tranches from MSC 2007-T25 transaction.

Who would've thought that a Las Vegas strip center wouldn't have survived this downturn?

h/t CrabsOfSteel

Wednesday, December 7, 2011

Hotel Lenders avoid Foreclosure

Bloomberg has an interesting article on hotel lenders.

. "Servicers do drag their feet with them a lot more because they aren't sure what to do."

(unless there is a backroom deal to be had)

Among hotel loans being worked out is $1.44 billion in financing backed by 355 La Quinta Inns & Suites owned by a unit of New York-based Blackstone Group LP.

"Special servicing is a routine precondition to requesting an extension and we have done this in over a dozen other similar situations."

(translation, "we've defaulted on over a dozen other failed loans where we are the borrower)

"Having some type of extension on an existing loan already in place, rather than a foreclosure or REO situation, is more likely in hospitality than in other commercial sectors," Stacey Berger, executive vice president at Midland Loan Services Inc., said in October. REO refers to real estate owned by lenders following a foreclosure.

h/t Anon

C-III and Grubb Ellis accused of breaking the rules

The WSJ reports.

C-III Asset Management, agreed last month to allow C. Michael Kojaian, the owner of the two buildings, to pay off loans at greatly discounted amounts, according to a report by Amherst Securities Group's research unit. The loans for $24.2 million and $22.6 million were paid off for a total of about $8 million...

Days after C-III and Mr. Kojaian finalized the deal, Trinity Health, a large not-for-profit health system, announced that it had signed a lease for 340,000 square feet in the two buildings.

Three days after the loan payoff on the two Michigan properties, Grubb & Ellis announced that it was in exclusive negotiations with C-III on a strategic partnership....

I heavily pared the WSJ article comments back.

Calm before the storm

A few news outlets were running this story the last few days. Maturities are really going to hurt this year - especially 5 year maturities that are hitting us from the peak of the bubble.

The bad news is that 5 & 7 year loans in the fixed-rate Conduit universe peaked at 40% of total issuance in 2005 (i.e. 5s are mostly gone now, 7s will hit in 2012), and then slowed to roughly 25% of total issuance in 2006 and 2007. Also, 2012 is the year that fully extended floaters issued by both banks and CMBS lenders will come due, and most of these were on projects that were not yet stabilized. And further, 2002 was actually a slow year for 10-year loans (<$50 billion), so its not like these maturities are a bunch of well underwritten, highly amortized, low LTV loans.

I don't have an updated version of these maturity charts - if someone has them, please pass them along. Thanks.

Sedmak exits RBS stage left

According to Bloomberg he's leaving financial services altogether...

Friday, December 2, 2011

Moody's taking CMBS IOs to the finishing lot

Moody's announced it was planning on rating IO tranches to more accurately reflect the inherent credit risk in CMBS IOs. S&P took a similar stance in 2009, and Fitch started withdrawing many IO ratings in 2010.

If you're unfamiliar, IOs in the CMBS world are comprised of the leftover interest in a deal - in other words, the difference between the weighted average net mortgage rate and the weighted average coupon of the CMBS bonds. If the underlying mortgages have a coupon of 5% and the WAC of the CMBS is 4.75%, then there is a 25 bp excess interest cash flow that goes into the IO. This was sometimes split instead into a PAC and a support IO. The IO also typcially gets all or part of the prepayment penalties.

Because the cash flow stream is so thin and there is no principal cash flow to IOs at all, these typically trade in single digits regardless. But, there is roughly an IO notional balance that equals the total size of the universe (they quote $600bln in the sell-side research and WSJ articles, but they're missing big parts of the universe... likely Ginnie Mae Project Loan deals for one.).

Obviously this interest cash flow stream can be interrupted by prepayments, defaults, modifications, various fees, and ASERs. The rating agencies are basically conceding that when they originally rated IOs, they only measured ratings against prepayments and gave credit back for prepayment penalties.

Will this REALLY impact prices?
On the one hand, I would be astounded if a ratings downgrade that has been widely anticipated since at least early-2009 and talked about in years prior to the meltdown would force a massive sell off. Does anyone even use ratings any longer? On the other hand, it wouldn't really surprise me that something widely anticipated and expected still caused a sell-off in CMBS-land. However, IOs are already treated as non-AAA securities by many regulators and most investors, so we really need substantial downgrades (from AAA to nonIG) to force selling.

Although small and mid-sized banks are not big players in CMBS, there are some that are active and they probably will sell any IOs that fall below investment grade (even AAA-rated IOs are treated with the same risk based weighting as a BBB cash bond by the FDIC, so a single notch downgrade will not force the bank's hand).

Some institutional investors will have investment grade/non-investment grade criteria that still causes them to unwind positions as well. Insurers (the vast majority of the legacy CMBS investor base) are less likely to sell off IOs en masse, IMHO, though, because they already rely less on ratings than their new risk-based modeling performed by PIMCO and Blackrock. Mutual Funds on the other hand may be forced to sell off.

I pushed the button earlier, and it didn't do anything. I was tempted by the possiblities for days but was too timid at first, finally abdicating earlier today and smashing it down, only to be overwhelmed with disappointment.

Buy or Sell?
I for one hope it does cause a sell-off so I can pick up some IO bonds. I actually have bought a few (both off Conduit and Project Loan deals) over the last several years that have performed beyond my expectations. I'm still surprised, generally in a positive way, when I get a little unexpected cash flow off of one of these. The real hard part is buying them cheap enough - beat the hell out of collateral and still get really good double-digit returns (even triple-digit if you're lucky) - that hasn't been possible as much in 2011 as it was in the prior 2 years. Hopefully 2012 will give us some more good cheap pricing.

Where can I find out more?
One can derive the most entertainment and get the most information about this move by reading the overly sensationalized WSJ article on the matter, which misinterprets a sell-side research report (coincidentally? authored by a former rating agency analyst) from Deutsche Bank. BAML issued a report a few years ago that described them in detail, but I can't find it online (the image above is cut from it though). I'd be happy to email it to someone if they're interested, so just let me know.

7 World Trade Center to go into a CMBS deal

CMAlert reported that Silverstein is looking to refinance the current Liberty Bond structure into a CMBS deal structured similarly to OBP, but with JPM.

The building hit 100% occupancy on the 10th anniversary of 9/11 when MSCI (the owner of the like-named indices) signed a new lease for 125k sf on the top floor.

As long as they will stop saying things like "it's the safest building in the country", inviting some twisted Titanic karma, it should make for great collateral. Of course, that is also what BOA thought in mid-2001 when it wrote the loan on the last building that was destroyed on 9/11.

Wednesday, November 30, 2011

Cantor buying CS loans for new $775mm CMBS deal

From Bloomberg.

Stuy Town tenants back in play

Crain's reported yesterday that Brookfield (who happened to raise their hand last week when we asked who had a few billion dollars of cash looking for a home in distressed real estate deals) is teaming up with tenants to make another push to buy the property. You'll recall that the tenants actually were prepared to pay north of $4 billion when MetLife original sold the property in '07, and the NY Times, at least, believes that bid will be at least the $3 billion owed on the senior mortgage.

Even if you correctly assume that the NY Times doesn't know what it is talking about and is pulling numbers out of the air that make good headlines, this is still good for the AJ and better bonds. In fact, the faster the resolution comes the better - we should see interest shortfalls get cured and the deals can stop accruing fees, not too mention the legal settlement, potential effects of an assumption or early payoff, etc. The big negative is what the loss to investors is going to be, but it's not going to be as bad as what is priced in to the bonds right now (guessing the C30 AJs are in the 50s, maybe L60s at best).

Sunday, November 27, 2011

Thankful to be an American, but dissapointed in America today

Feeling a little fat after this week, but got ample helpings of movies like The Patriot, Gone With The Wind (fell asleep), Gladiator, Pearl Harbor, and American Beauty to stir up the spirits. I also read a Robert Ludlum book. I'm itching for a fight ;)

The Black Friday phenomena just disgusts me - even when they're not spraying pepper spray into crowds or bashing the faces of accused shoplifters against the cold linoleum floors of a Super Walmart, the shopping orgy of the year just leaves a disgusting film on the whole holiday. Christmas, in general, is really one of my least favorite times of the year. I've bought the requisite gifts so no one can call me Scrooge, but I'll be damned if I hang a single light or put up a dead tree inside my house (aside from the lumber that holds up the walls). All I want for Christmas are physical gold and silver.

Tuesday, November 8, 2011

ZeroHedge just crashed...

Where are we supposed to go now for our doomsday outlook!#!!#?!?!

Fitch - CMBS losses May Be "Manageable" 4% - 5% When Deals Mature

That's the Bloomberg headline, good for a laugh.

They go on to clarify that losses on all CMBS issued/rated prior to mid-2007 have been just 2.6% and will increase to 10.6% by maturity. I wasn't able to tie in the numbers from the headline to anything in the article, but double digit loss projections at least have the right number of digits...

CreXus beats earnings - Q3 ROE 17.61%

Monday, November 7, 2011

Stuyvesant Town/Peter Cooper Village Tenants win a judgment...

Two years after we noted that PCV/ST lost their appeal and the win was affirmed by the NY Court of Appeals on the J-51 rent control violation, the tenants have finally won their judgment of $215mm - almost a year's worth of revenues at the troubled property.

Deutsche Bank produced a summary of potential interest shortfalls making it apparent that they need to add a professional "formatter" to their team, but interesting nonetheless. In their worst-case scenario where all of the judgment is paid out of the CMBS trusts, shortfalls shake out as such:

Highest Class hit with a shortfall:
CWCI 2007-C2 G
MLCFC 2007-5 B
MLCFC 2007-6 D
WBCMT 2007-C30 F
WBCMT 2007-C31 G

Tuesday, November 1, 2011

Brookfield buys out Four World Financial Center

Brookfield bought out the remaining 49% interest it did not already control of World Financial Center at approximately $270 psf, and simultaneously agreed to a 767k sf lease (40% of NRA) with BAML.

Thursday, October 27, 2011

Government Property Advisors Portfolio (3.6% LBUBS 2006-C7) transfers to the Special

Happened last month, I just missed it. Saw it in DB's report today. That makes three of the top 10 loans in LBUBS 2006-C7 deal gone to the special over the last two months.

Monday, October 24, 2011

Epic Fail

Last week it was reported the first AAA CMBS in Europe took a principal writedown. However, keep in mind that the EPICP INDU deal was a single floating-rate loan on a portfolio of 119 properties in the UK. It originally matured on 4/20/2011, but the loan terms were modified to extend it to 4/20/2014. Still unable to survive, it ultimately 65% loss on the senior note and 100% on the junior and mezz pieces.


Barclays is growing its CMBS team - suck it CS!

Does HITC count as a source?
Barclays Capital announced several appointments to its Commercial Mortgage Backed Securities (CMBS) Finance business in the U.S.
These appointments accelerate the recent expansion of the firm’s CMBS origination capabilities...

Move along, everything is fine now - CPPI up 2.4% mom

Oct. 24 (Bloomberg) -- 
U.S. commercial property prices rose 2.4 percent in August, the fourth straight months of gains, according to Moody’s Investors Service. 
    The Moody’s/REAL Commercial Property Price Index is now 15 percent above its post-peak low in April, the company said in a statement today. Moody’s doesn’t see “significant” price gains in the near term as loan originations based on commercial- mortgage backed securities slow and demand for vacant space continues to “languish,” the company said.

Wednesday, October 19, 2011

The Belnord gets a $93.5mm appraisal reduction

Special Servicer's Survival Guide: 201

Anon posted a link to a summary from a recent conference with some interesting highlights. You should really click the link, but I'll hit some of the high points of their highlights:

  • More than 2/3rds of CMBS loans coming due have been extended and can be extended no longer due to PSA limitations (I'll need to double check that one...) -Steve Van
  • Flags have been laid back enforcing brand standards on their properties, but it's been three years and they're running out of patience. -Steve Van
  • Pace of workouts are exceeding the pace of transfers to special servicing and he expects to work through the backlog over the next 3 - 5 years. -Clark Rogers, Keybank and echoed by Michael O'Hanlon, Berkadia
  • The lack of financing since August is having a noticeable impact on maturing loans. Expects to see a big uptick in Large Loan Floaters hitting their last extension date with no possibility of refinancing. Expects massive defaults in LL Floaters. -O'Hanlon
  • Big demand for Hotel product coming out of Large Loan Floaters. -Rogers
  • Specials who kicked the can down the road look like geniuses today? (not sure I would call the specials geniuses).
  • Still don't expect a flood of distressed loans. 
  • General agreement that nothing has changed - fundamentals have stayed flat, unemployment hasn't improved, recession never really stopped...
Thanks Anon.

Monday, October 17, 2011

GGP refinances Northbrook Court (NOT in a CMBS)

per Bloomberg.

That brings the total to $996mm in GGP loans refinanced the last few weeks, and that looks like it for the rest of this year. Mathrani said "We have accomplished our 2011 goals and are now focused on 2012 financing opportunities."

Friday, October 14, 2011

Credit Suisse Update

Although they're cutting all the bankers, the trading desk isn't impacted.

MetLife and NY State Teachers fund 3 GGP Malls

CMAlert noted that the two lenders funded three notes:

Natick Mall - $450mm ($250 MetLife, $200 NY Teachers)
Galleria at Tyler - $200mm (just MetLife); WBCMT 2006-C29
First Colony Mall- $185mm Metlife; MLCFC 2006-4

Innkeepers reach tentative deal with Cerberus and Chatham

WSJ and Nomura reporting ~$1 billion. Nomura notes this would result in an 18% loss severity - not too shabby in my opinion.

Thursday, October 13, 2011

GGP Victoria Ward Forgoes Extension (COMM 2006-C8)

Barclays highlighted this earlier in the week. Although Victoria Ward (Honolulu Retail) was modified during the GGP bankruptcy to move it's maturity date from this month to 2016, it paid off this month as originally scheduled. The modification also switched the loan over to an amortizing payment, from IO, and will definitely shorten the front-pays with a $86.5mm outstanding balance.

A2B is the current pay with $244mm outstanding. It was on a list on 9/22, but not sure where it traded.

Colony Square and Midtown Plaza transferred to Special (LBUBS 2006-C7 - $181mm combined)

Both Tishman-owned Atlanta GA office loans were slated to mature this month. Colony Square has a 0.81x DSCR and Midtown Plaza has a 0.54x DSCR (NCF DSCRs as of 1Q 11).

h/t Fitch and Barclays

Monday, October 10, 2011

Cerberus and Innkeepers USA Trust reach a settlement - lower execution price

From Bloomberg:

The settlement includes a reduction in the price New York- based Cerberus and Chatham Lodging Trust will pay to acquire Innkeepers, said the people, who didn’t disclose the new price and asked not to be named because the talks are private. The accord, reached after a weekend of negotiations, isn’t final and could still fall apart, said the people, and a final agreement is subject to approval by the U.S. bankruptcy court judge overseeing Innkeepers’ restructuring.

Friday, October 7, 2011

It's the Frenchies' fault

Barron's blames the French banks for the drop off in CMBS AAA prices. Using Barron's number of $9.4billion in CMBS holdings by French banks, though, it only represents about 1.3% of the total market.

However, despite their 3rd grade level attempt to blame the French, and as the proud parent of a 3rd grader, I am fully comfortable using this opportunity to share this 3rd grader's report that I found online.

Monday, September 26, 2011

Bank of America Center Refied

This $845mm loan refied last week - BACM 2004-4 ($150mm senior, $103mm rake legs), BACM 2004-5 ($137mm), MLMT 2004-BPC1 ($130mm), and $230mm in Mezz.

The new debt ($600mm) was provided by Pac Life and Met Life, carries a 5.1% coupon, 10 year balloon, amortizing structure.

This 1.8mm square foot office is 93% leased at an average rate of $56.35/sf with the major tenants being BofA (659k sf), Kirkland & Ellis (125k sf), and UBS (107k sf).

Vornado purchased a 70% stake of this property and 1290 Avenue of the Americas in 2007.

CMBS in a Top Position when Risk-On Trade Returns

From Chris DeReza @ Bloomberg (sorry no link):
Sept. 26 (Bloomberg) -- As Treasury yields hit new lows, investors should see even greater value in CMBS spreads that still provide one of the highest AAA-rated yields available above 3%, Amherst debt analysts led by Darrell Wheeler write in client note.
  • CMBS AAA legacy spreads have given up most of 2011 rally, moved from S +175bps to +325bps
  • Have underperformed IG corporate spreads that are out only 15bps in second half of 2011
  • This is relative to CMBS AAA widening, which is more in line with riskier high yield spread widening of 196bps: Wheeler
  • Buying earlier last week suggested investors are questioning how much European crisis should affect U.S. economy
  • "When investors start to move money from the sidelines and back into risk assets this dislocation should put CMBS bonds at the top of the shopping list as they provide one of the last remaining relative yields in an uncertain economic environment": Wheeler
  • 30% enhancement of legacy deals withstands default scenarios in any double dip recession projection while “simplicity of the credit math is compelling"

Sunday, September 25, 2011

Harvard to buy $1+ billion triple net leased real estate

They're allocating $360mm in equity. Article here.

We don't need your stinkin' money

The WSJ reports that BofA selling $888 million CRE mortgage portfolio:

A venture of Square Mile Capital Management LLC, Invesco Ltd. and a fund managed by Canyon Capital Realty Advisors LLC is buying the portfolio, a mix of performing and nonperforming loans tied to 32 properties, the person said. The buildings include the eight-story Renaissance Centre office building in Wilmington, Del., and the Bank of America Tower in St. Louis, which is not owned by the bank.


The buyers have been active lately: New York private-equity firm Square Mile recently was part of a team that bought a 4,700-unit distressed apartment portfolio in the Midwest, while Dallas-based Invesco in June bought into 230 Park Ave. in Manhattan, an office building.

Wednesday, September 21, 2011

GSMS 2011-GC5, $1.75bln

As Dow Jones puts it:
Goldman and Citigroup increased the size of the deal to $1.7 billion from $1.5 billion, and adopted a far more conservative structure for it than in July. The deal includes 30% credit enhancement for senior investors--or 50% more than dealers offered and investors accepted in July--meaning more than one-quarter of the issue would have to default before the top holders experience any loss.

Take note: 30% c/e is equal to 25% protection...

74 Loans, $1.74bln

Class Fitch/Mdy/MNSTR Size($mm) WAL(yr) CE% Cum LTV Debt Yield PxGuid $px
A1 AAA(sf)/Aaa(sf)/AAA 90.398 2.30 30.000 41.9% 16.9% S+100a 100
A2 AAA(sf)/Aaa(sf)/AAA 476.574 4.68 30.000 41.9% 16.9% S+175a 101
A3 AAA(sf)/Aaa(sf)/AAA 86.430 7.21 30.000 41.9% 16.9% S+190a 101
A4 AAA(sf)/Aaa(sf)/AAA 568.249 9.55 30.000 41.9% 16.9% S+185a 101