REITWrecks wins the best title of the day award - TARP Torpor Torpedoes REITs

http://www.reitwrecks.com/2008/11/tarp-torpor-torpedoes-reits.html#links

REITWrecks is one of my favorite blogs, although it wouldn't hurt my opinion of them one bit if they published more frequently.

A couple of comments though on this posting. The quote from Green Street Advisors' Mike Kirby only shows that Mr. Kirby has not looked at the data. There is not really that many CMBS loans maturing in 2010, even considering the hobbled loan market - its one of the more docile years, although 2011 and 2012 start to get hairy. Less than 8% of the outstanding CMBS loans mature in 2009 and 2010, combined. The lending market is not shut down, but if it remains hobbling along until 2010, some loans will have issues and will likely be extended. Most of the CMBS loans maturing in 2010 were originated in 2000, only some from 2005, none from 2006 or 2007 (at least not from the Conduit market, maybe a few floaters).

Everyone else is right on. Prices on AAAs dropped even lower since Pendegrast and Wheeler's comments. You really would have to see every commercial loan default, and have horrific recoveries, to justify these levels. Even then, it frankly takes a year or two to repo, market, and sell a foreclosed property - some of the current pay and front pay bonds, yielding 13+% more than Treasuries, get paid off even if you assume 100% Defaults and 99% losses!

Cheap, Cheap, Cheap

This WSJ article got a lot of things right, and deserves praise given the deluge of poorly written articles this week.

Triple-A commercial mortgage-backed securities are trading at roughly 70 cents on the dollar, meaning they would produce a 20% return if held to term.

That's

Back then the cumulative default rate on loans made in 1986 reached 36%.

This number sounds fishy, but not having the data handy let's concede its true. That would mean the average default on any given year for the 1986 was around 3.6%, some were cured, some were foreclosed on and took losses.