Wednesday, January 23, 2013

Andy Beal Needs You!

Featured in the WSJ today, Andy Beal is ramping up his put-back campaign against the evil originators.  If you own any of the following bonds in the list below, you may have a friend in Andy:

CXA Corporation's Tranches Owned


It seems as if Andy went long all the right kinds of resi at very good prices, no doubt.  He's made a fortune a few times over and it's good to see he's still doing it.   Bloomberg and WSJ have covered him pretty thoroughly in the past.  I suggest the following reads for the unacquainted.

  1. Maverick Banker in Texas Chases Distressed Assets - WSJ
  2. Beal Becomes Billionaire with FDIC Assets as He Tops Poker Pros - Bloomberg

~Jingle Male

Disclaimer: Not long any of those bonds nor am I affiliated with Andy Beal.

Monday, January 21, 2013

Linkage for the Lazy

Ladies and gents, enjoy the link-fest below:
  1. Goldman Sells $750M in Junior Loans on Hawaiian Portfolio - Deal Journal
    1. Abu Dhabi Inv., Canada Pension Plan Inv. Board, and Athene Annuity & Life (owned by Apollo) were the buyers.
  2. Sony Selling U.S. Headquarters Building for $1.1B - Reuters 
    1. Apparently, this is one of the rare times that Sony has been able to make money in the past few years. I really dig  The Brooklyn Investor's arguments as to why Sony is stuck.
  3. BRE Properties Is Possibly In Play - WSJ Developments
  4. Lennar Expanding into Apartments - Bloomberg
    1. Lennar has been doing a lot of things right over the past few years.  
  5. Toll Brothers Playing Follow the Leader - WSJ 
    1. How cute. "Suburban Builder Sees Growth in City Living; 'Tired of Mowing the Lawn.'"
  6. Tishman Speyer in the News, And It's Not Bad This Time - WSJ
    1. Apparently they have learned their lesson.  Less leverage equals less pain in a downturn.
      1. For the uneducated, The CRE Review has been chronicling the Stuy Town Saga for quite some time now.
Yes, the single-family rental rating drama is still playing out and I'll comment on that soon.  In addition to CBS spinning off it's billboards into a REIT and a write-up on RLJ Lodging.

Until then, enjoy the holiday.

*Hat-tip to reader 'Carte Tranche' for the link on Sony's US headquarters*

~Jingle Male

Tuesday, January 15, 2013

Guess Who's Back

Today seems like an odd day for the fringes of the credit markets.
  1. First you have Hunter at Distressed Debt Investing who is basically decrying the current state of the HY markets as "out of control".
  2. Second, you have Bloomberg writing a piece on CRE CDOs making a comeback.  But don't call it a comeback!  And honestly, don't you dare call it a CRE CDO neither, call it a "collateralized loan obligation".   
  3. And then, like a phoenix rising from the ashes, the WSJ prints a piece that symbolizes the return of the B-piece buyer.  He's not trying to repack his residual holdings into a CDO anymore though; those days are long gone.  Eric Hillenbrand and his crew have turned a new leaf.  Welcome back gents and if anyone knows where Andy Stone has gone to, please tell him he is missed.
Usually my first instinct is to take the opposing view when the mainstream media prints stories of how a certain asset class is "toppy" but I just don't know what to believe anymore.

~Jingle Male

Monday, January 14, 2013

The Carnage

Hurricane Sandy did damage, no doubt to the Eastern segment of the financial district.  One of the buildings I walk by every day is 199 Water Street, also known as One Seaport Plaza.  Anchored by Abercrombie and Fitch and having BGC, Aflac, and Aon as its tenants; this building was something nice to look at.  Less than a block away from the Seaport itself, it is still under repair and I wonder how this will impact MSC 2007-HQ11.  Abercrombie and Fitch is still not up and running.  Want to get an expensive egg sandwich and coffee at Europa?  Forget about it.  BGC Partners was moved to Cantor's mid-town office for a stint as Jack Resnick & Sons tried to return the real-estate to it's pre-Sandy glory.

According to Moody's "the property was 98% leased as of March 2012, compared to 100% at the prior review and 97% at securitization." One Seaport represents 11% of MSC 2007-HQ11.  Just saying.  But beyond the questionable cashflows this collateral will eke out going forward, Hurricane Sandy poses larger questions for the insurance district in downtown NYC.  Why would any prospective tenant want to secure a major lease in the area after what happened?

GGP/Howard Hughes got lucky that their beauty was spared the destruction that a lot of the area's businesses could not escape.  It still pains me that I can't get my daily cup of coffee at the Flavor's at Water and John Street.  That business is a great franchise by the way and unfortunately, it looks like it will not be coming back. 

It's no secret that AIG is probably not going to roll it's lease at 180 Maiden Lane and despite SL Green doing a solid job of turning the lights back on after Sandy in about a month's time; it's hard to blame AIG for wanting to find a more secure and stable location.

I'm not sure if tenants will shift away from the Eastern side of FiDi or stay away from it altogether.  Two months out and still, not all the lights are up and running.  This could bode well for Midtown but let's see what kind of concessions property owners will make.  Their hand is weak, and wet.

~Jingle Male

Saturday, January 12, 2013

Friday, January 11, 2013

DRA/Colonial ($742mm) receives extension modification

Barclays put out a loan report today on this loan, which is has pari passu pieces in three CMBS deals. The mod is a positive for investors as it doesn't change the rate, doesn't reduce interest cash flow, and requires deposits, and some effort to sell properties and pay down principal. The extension is for two years, with an additional year possible but dependent on a 50% principal reduction from sales (new max extension = July 2017).

Tuesday, January 8, 2013

AIG considers suing US for onerous bailout terms

Greenberg has filed a lawsuit already, and he is asking the board to weigh in and join him in suing the US government for around $25 billion (roughly equal to the 'profit' they made on the bailout) because they charged onerous interest rates (14%) and other unfair terms.

My first, second, and last reaction is Wow. It takes some gall to turn around and sue the government when you chose to accept their assistance - and AIG did choose that path, unlike some of the banks who allegedly were effectively forced to take the government assistance and enter into mergers. Some nerve.

The more important takeaway though, is that the government circumvented established bankruptcy law that is set up to handle a situation where a company has made bad decisions and is in financial ruin. No company should be labeled TBTF, if they fail they should go through bankruptcy and have the assets and liabilities lined up and whittled down at discount prices exactly as the law is set up to do currently. Instead the US came in and prevented a bankruptcy - which was well deserved - AIG was neck deep in CDS on mortgage product that was undergoing extreme dislocations and was vastly mispriced. It's not as if other investors didn't see it coming and have a completely opposing opinion and made gazillions of dollars.

Tuesday, January 1, 2013

CMBS 2013 Outlook

The CMBS market has certainly enjoyed a revival during 2012 and there are a number of reasons to be optimistic about 2013 including the pick up in originations, continued low rate environment, and improved fundamentals within outstanding CMBS deals. Morningstar notes that the consensus is that it's gotta be better than 2012. Some quotes from RBS and CS reports can be found here. The best write-up we've seen so far is Nomura's, and you can contact your sales coverage there for a copy of the 12/6/12 2013 Outlook: The Road to Recovery.

Some of the points others have highlighted as positive include:
  1. The mix of maturing loans shifts from the heavy burden of 5 and 7 year loans originated between 2005 and 2007 to 10-year loans originated in 2003, which results in lower term and maturity risk. Maturity risk should remain muted the next 2 to 3 years, but ramp up in 2016 and 2017 when 10-year loans from 2006 start to mature. Further, as Nomura points out, prices are back to 2005 levels (still down 26% from the peak), so fewer 2005 loans are not "under-water".
  2. Issuance could exceed $100 billion (Nomura >$100 b, Morningstar - $50-75b), although this is partly driven by the deterioration in underwriting we've witnessed in 2012. Nomura breaks it out by $41b in Conduit, $10b in Agency, and $53.2b in Agency.
  3. Delinquencies have likely peaked - Nomura
  4. Capital availability has led to increased transactions ($200b in 2012, up 8% - Nomura)
  5. Fewer modifications expected as climate improves. This is due both to easier availability of credit to borrowers so they can lend their way out of problems, but more towards the ability of lenders to foreclose on properties and sell them.

Some negative counterpoints include:
  1. $40+ billion in defaulted loans are still in the pipeline. We should see increased loan sales from this pool.
  2. Deal losses will continue to grow as delinquent loans are resolved. Nomura is looking for an increase from 2.9% deal-level losses on 2005-2008 vintage loans to 5% by the end of 2013.
  3. Dodd-Frank - pretty much everyone made a passing reference to legislative risks, but there was less focus than on other risks.
  4. Prices are too high, and the easier credit is going to cause more bonds to pay off at par, faster than premium buyers are expecting - RBS & CS. I certainly wouldn't be buying premium front or next pays right now either. RBS recommends buying further down the stack, and that is in line with what we did late in 2012.