Fitch explores the 'contradictions' of U.S. multifamily CMBS

I haven't read the Fitch report, Reuters reported that there is one out there asking the tough questions about why multifamily has the biggest loan performance problems despite improved property performance and gives NY as an example:

A notable example is New York City. Despite being the second-best performing city in the Case-Shiller index, the city has four big problems in multifamily CMBS; Stuyvesant Town/Peter Cooper, The Belnord, The Savoy and Riverton, the underperforming loans of which total $3.6 billion.

I'm going to take a stab at the answer for at least these four. The business plans were almost comical in their overconfidence in their ability to kick out rent control tenants and replace them with market tenants, they were highly overleveraged and underwritten to future revenues that never materialized, and they were breaking the law and evading taxes.

Improvements in Multifamily sector driven by NYC MSA

Herschmeyer at Co-Star notes:

Removing these loans [see list below] reduces the multifamily Fitch Loan Delinquency Index from 14.4% to 9.3% at the end of 2011. This moves multifamily from the worst performing of the five asset classes to the middle of the range with office (6.8%) and retail (6.9%) being the best performers and hotel (12.0%) and industrial (10.25%) being the worst.

In 2006 and 2007, issuers underwrote fixed-rate multifamily loans with stabilization plans, whereby rent stabilized units were converted to market. These loans, Stuyvesant Town/Peter Cooper Village ($2.8 billion), The Belnord ($375 million), Riverton ($225 million), and Savoy Park ($210 million) for a total of $3.6 billion did not see their stabilization plans pan out.

I might add to that last paragraph, "because each of the aforementioned projects were blatantly attempting to evade taxes, break NY state law, and all had ludicrous plans based on the expectation that they could simply kick out the rent control tenants and replace them with market rents - a strategy that has parted fools with their money for nearly a century". But I wasn't consulted, so I'll keep my thoughts to myself.

The Belnord gets a $93.5mm appraisal reduction

A Closer Look at Five Random CMBS Loans

ZeroHedge took a close look at five failing CMBS loans, and clearly laid out their reasoning and loss expectations.

I'd be curious to see them draw a more distinct line between the fundamental analysis and valuation of the actual bonds. Things feel a little rich now, but I still feel like there are some good values in 2006 and later vintages at some points in the capital stack.

The Belnord stuck out as one of the rent-control flips. Here is an abbreviated list from a BOA report that lists some more big ones. The actual report had several pages more - it'd be interesting to see where those all stood today.