Posts Tagged ‘CMBS’
Thursday, February 25th, 2010
Commercial mortgage-backed securities (CMBS) are expected to remain below $15 billion in 2010 as borrowers cope with falling property values. According to Alan Todd, a JPMorgan analyst, debt sales backed by CBD office, hotel and shopping center loans could be as low as $10 billion this year. Aaron Bryson of Barclays Capital is more optimistic, predicting transactions totaling approximately $15 billion for the year.
The federal government has promised to revive the $700 billion CMBS market, even as property values fall and securing loans is difficult. In 2007, a record $237 billion of debt was sold. That fell precipitously in 2008 to just $12 billion and even further to $1.4 billion in 2009. Activity isn’t expected to increase until the second half of 2010.
“The banks would like to lend,” Todd noted. “There are fewer properties to lend against.” He pointed out that many owners went heavily into debt during the boom and now cannot locate properties not currently encumbered to lend against. The dearth of new loans cuts off funding to borrowers whose debt is maturing. Approximately two thirds of loans bundled and sold as securities - totaling $410 billion — may require additional cash as property values fall and underwriting standards get tougher, according to Deutsche Bank AG research.
Moody’s Investor Services reports that commercial real estate prices in the United States are 42.9 percent lower than their 2007 peak.
Tags: Barclays Capital, Bloomberg, CMBS, Deutsche Bank AG, JP Morgan Chase, Moody's Investor Services, treasury notes
Posted in Economics, Financing | No Comments »
Wednesday, February 24th, 2010
Commercial real estate will begin its long-awaited recovery in late 2011 or 2012, according to the fourth-quarter Korpacz Real Estate Investor Survey, which questioned more than 100 real estate investors, including REITs, pension funds, private equity firms and insurance and mortgage companies. Confirmation is provided by a PricewaterhouseCoopers survey, which notes that Washington policymakers are increasingly tweaking the strings that impact pricing.
According to the Korpacz survey, “Rental rates will continue to decline until strong, consistent job growth resumes. With $1.4 trillion of commercial real estate debt maturing by the end of 2012, some property owners will not be able to survive the downturn. Problems related to refinancing that debt could further delay a recovery in the sector.”
Government and regulatory policy will have greater impact on pricing than occupancy levels or rents, according to Real Capital Analytics, Inc. “Policymakers control what happens to commercial mortgages in default,” Robert White, the president of Real Capital Analytics, wrote in a report. They “have encouraged loan modifications and extensions even in cases where loans are above a property’s current value. Tax policy, meanwhile, has made it easier for special servicers to negotiate with borrowers, a move meant to prevent a wave of maturity defaults and property fire sales. Keep rates low and easing restrictions on foreign capital will also influence industry prospects.” Real Capital Analytics notes that commercial mortgage-backed securities (CMBS) hold 42 percent of distressed loans; American banks 31 percent; and foreign banks 13 percent.
Tags: CMBS, commercial real estate, Pricewaterhousecoopers, Real Capital Analytics Inc, recession, recovery
Posted in Development, Industrial, Office | No Comments »
Wednesday, January 20th, 2010
Foreign banks, American private equity firms and a leading Chinese sovereign wealth fund have been investing in commercial real estate in the United States in the hope that interest rates stay low.
This increasing interest from investors could be a sign that the market is experiencing some stabilization. According to Bob Steers, co-chairman of Cohen & Steers, a real estate investment firm, “We believe the real story is that capital is ready to buy, even though it may not be so visible today.” As one example, the state-owned China Investment Corporation has enlisted several investment firms to identify commercial real estate opportunities in the United States.
Another sign of incipient recovery is the fact that Colony Capital won a Federal Deposit Insurance Corporation (FDIC) auction for $1 billion worth of commercial property loans previously held by banks that had failed. The transaction valued the loans at 44 cents on the dollar and is structured so the FDIC put up $136 million owns 60 percent of the equity. Los Angeles-based Colony put up $90 million for a 40 percent share. Colony’s founder, Tom Barrack, said the investment is “an implicit bet that rates stay low.”
In another example, JPMorgan Chase raised $625 million for Inland Western, which put $500 million into CMBS. The deal was significant because it closed without assistance from the Term Asset-Backed Loan Facility (TALF).
Tags: Bank of China, China Investment Corporation, CMBS, Colony Capital, commercial real estate, Federal Deposit Insurance Company, Inland Western, interest rates, private-equity firms, recession, recovery, SL Green, Sovereign wealth funds, TALF
Posted in Development, Economics, Office | No Comments »
Thursday, January 7th, 2010
Commercial real estate will begin its long-awaited recovery in late 2011 or 2012, according to the fourth-quarter Korpacz Real Estate Investor Survey, which questioned more than 100 real estate investors, including REITs, pension funds, private equity firms and insurance and mortgage companies. Confirmation is provided by a PricewaterhouseCoopers survey, which notes that Washington policymakers are increasingly tweaking the strings that impact pricing.
According to the Korpacz survey, “Rental rates will continue to decline until strong, consistent job growth resumes. With $1.4 trillion of commercial real estate debt maturing by the end of 2012, some property owners will not be able to survive the downturn. Problems related to refinancing that debt could further delay a recovery in the sector.”
Government and regulatory policy will have greater impact on pricing than occupancy levels or rents, according to Real Capital Analytics, Inc. “Policymakers control what happens to commercial mortgages in default,” Robert White, the president of Real Capital Analytics, wrote in a report. They “have encouraged loan modifications and extensions even in cases where loans are above a property’s current value. Tax policy, meanwhile, has made it easier for special servicers to negotiate with borrowers, a move meant to prevent a wave of maturity defaults and property fire sales. Keep rates low and easing restrictions on foreign capital will also influence industry prospects.” Real Capital Analytics notes that commercial mortgage-backed securities (CMBS) hold 42 percent of distressed loans; American banks 31 percent; and foreign banks 13 percent.
Tags: CMBS, commercial real estate, Price Waterhouse Coopers, Real Capital Analytics Inc, recession, recovery
Posted in Development, Industrial, Office | No Comments »
Wednesday, December 2nd, 2009
The commercial bond market may be opening up slightly as Bank of America (BofA) prepares to sell $460 million worth of bonds collateralized by properties owned by Fortress Investment Group. The bonds that BofA is arranging are ineligible for TALF, another positive sign that the commercial mortgage market might finally be showing signs of improvement.
The transaction involves 44 properties, primarily Florida office and industrial buildings, with bonds rated in the AAA to BBB range. Price ranges were not available. This deal and the recent $400 million sale of shopping malls owned by Ohio-based Developers Diversified Realty represent the initial offeerings since securitization of real estate loans came to a halt in the middle of 2008. Investors should be wary against being overly optimistic about these sales since commercial mortgage-backed securities (CMBS) are unlikely to be as significant a financing vehicle in the future. Although financing is opening up for specific new issues, investors have little appetite to refinance the trillions of dollars of risky commercial loans that are coming due over the next few years.
“It is another baby step,” said Thomas Zatko, managing director at Babson Capital Management.
According to an index compiled by Moody’s Investors Service, commercial real estate prices have slid 43 percent from their peak in October of 2007.
Tags: Babson Capital Management, Bank of America, CMBS, Freddie Mac, Troubled Assets Relief Program
Posted in Economics, Financing, Healthcare, Office, Residential, Student Housing | No Comments »
Monday, November 9th, 2009
The markets are keeping a close eye on a transaction that may jump start the commercial property debt market, even though the Federal Reserve has expressed some uneasiness with the deal. If the transaction is successful, it could pave the way for the initial sale of commercial mortgage-backed securities (CMBS) under the government Term Asset-Backed Securities Loan Facility (TALF). The credit-hungry commercial real estate industry is hoping that the debt sale by shopping center owner Developers Diversified Realty Corporation will lead to additional CMBS sales.
Developers Diversified has obtained a $400 million loan from Goldman Sachs Group, Inc., which is intended to be converted into a CMBS offering through TALF. The Fed, keeping the taxpayers’ best interests in mind, has reservations about financing the transaction since it involves a single borrower. These are considered riskier than deals involving multiple borrowers, where the risk is spread over different borrowers, building type and even location.
“The Fed is being very conservative, very diligent in reviewing collateral and very risk-averse,” said Frank Innaurato, managing director at Realpoint LLC, a credit-ratings firm. Currently, the Fed is reviewing the transaction, which involves 28 shopping centers with stable cash flows. If the Fed says “no” to the transaction, Goldman Sachs is said to be considering selling the $400 million loan outside TALF.
TALF was created to revive the CMBS market, as well as jump start securitized debt markets by offering low-cost financing from the Fed so investors can once again purchase these securities. The program lets investors borrow as much as 95 percent of the bonds’ value by pledging the securities as collateral - meaning the risk is on taxpayers if there is a default.
Tags: borrowers, CMBS, Commercial property debt, default, Fed, Federal Reserve Bank, Goldman Sachs, real estate market, Real Estate Roundtable, TALF, taxpayer money
Posted in Economics | No Comments »
Wednesday, September 30th, 2009
The Treasury Department has issued new tax rules that make it easier for commercial real estate owners to restructure loans on distressed properties that were package by Wall Street and sold as CMBS. The real estate industry, which lobbied hard for the changed rules, were generally happy but wary that it could open a can of worms for securities servicers who might feel pressured by borrowers and competing investor classes.
This is the initial phase of “additional guidance” the Treasury is considering to prevent what could be a commercial real estate crisis as more than $150 billion of loans bundled into CMBS come due between now and 2012. With financing still limited and as the values of commercial properties decline, some owners will find it tricky to refinance maturing debt.
Tax rules previously made it difficult for borrowers who are up-to-date on their payments to talk with bond servicers about restructuring their loans. The new guidance from Treasury clearly allows discussions about reducing the interest rate or extending the loan term, stating that such talks “may occur at any time” without tax consequences. Additionally, the guidance lets servicers modify loans no matter when they mature. The servicer only has to believe that there is “a significant risk of default”, even if the loan is currently performing.
“A stalemate now exists on CMBS loans that are not currently in default but need modification,” said Jeffrey DeBoer, chief executive of the Real Estate Roundtable. “Today’s announcement should help break the stalemate.”
Tags: CMBS, commercial properties, commercial real estate, distressed property, Financing, IRS, loan, Treasury Department
Posted in Development, Financing | No Comments »
Tuesday, August 18th, 2009
An interesting comment in an article that some might have missed. GlobeSt.com reports that Eastern Consolidated CEO Peter Hauspurg said “part of the whole thing that’s keeping these banks glued up with the CMBS is the fact [that] no one has been able to unravel the loans they understood when they made them.” Hauspurg noted that there are thousands of loans now clogging the banks, distracting the top officials who are all trying to make sense of them. And their complications cause new problems, he explains, “the market has the specter of commercial real state players actually throwing their own properties into default, just to get the attention of special servicers who they hope will modify their loans.”
Tags: CMBS, commercial real estate, Department of the Treasury, Eastern Consolidated, Globest.com, Peter Hauspurg, TALF
Posted in Financing, General | No Comments »
Monday, June 29th, 2009
Moody’s reiterated its February analysis of CMBS loans, noting that the majority of 2006 - 2008 ratings of conduit/fusion and large-loan deals are still stable. The ratings agency warns that the assumptions hold up “as long as conditions in the commercial real estate market and the general economy do not weaken.”
Since February, “property prices have continued their march downward,” the Moody’s report notes. Moody’s envisages a peak-to-trough price slide of more than 30 percent, with cap rates trending higher over the next several quarters.
“Despite the grim prognosis for property values, it is important to repeat the point made in the February report announcing our ratings sweep: that property value is primarily a concern at loan maturity.” Because most CMBS loan maturities will occur five to six years from now, “the maturity profile of the universe of CMBS loans is relatively benign.”
If the markets remain as weak in 2016 or 2017 as they are now, obviously there would be negative rating implications for CMBS.
Tags: CMBS, CMBS loans, commercial real estate, general economy, large loans, loan maturity, Moody's report, property values, ratings agency, recovery, senior investment grade bonds
Posted in Economics, Financing | No Comments »
Thursday, May 21st, 2009
$70 trillion dollars. That’s all the money in the world, or to get technical, the subset of global 
savings known as fixed-income securities. And it almost doubled from $36 trillion in just six years. How did this happen?
The Federal Reserve presided over the creation of what we have learned (the hard way) is a monster of unregulated investment vehicles run amok, resulting in the global credit crisis.
In the words of National Public Radio’s international business reporter Adam Davidson, “What he (former Federal Reserve Chairman Alan Greenspan) is saying is he’s going to keep the Fed Funds rate at the absurdly low level of one percent. It tells every investor in the world: you are not going to make any money at all on U.S. treasury bonds for a very long time. Go somewhere else. We can’t help you. And so the global pool of money looked around for some low-risk, high-return investment. And among the many things they put their money into, there was one thing they fell in love with.”
Investment companies fell in love with securitizing mortgages, bundling them into enormous pools - in some cases, pools of as many as 16 million loans — and selling them in shares to investors. To make the pool of mortgages even larger, they created vehicles like adjustable-rate mortgages (ARMs), subprime mortgages and no-income, no-asset loans that allowed people to buy homes or take out home equity loans that they simply could not afford. Last 
September, this house of cards came crashing down, setting off the global credit crisis and making an ongoing recession the worst in a generation.
Click here to listen to the full “The Giant Pool of Money” podcast from “This American Life” to learn exactly what happened and why. I know of no better description of how the recession happened.
Tags: adjustable-rate mortgages, Alan Greenspan, CDOs, Ceyla Pazarbasioglu, CMBS, credit default swap, Fed Funds rate, Federal Reserve, Federal Reserve Chairman, fixed-income securities, foreclosures, global credit crisis, global financial system, global pool of money, global savings, home equity loans, homes, International Monetary Fund, Ira Glass, loans, National Public Radio, Neighborhood Assistance Corporation of America, no-income no-asset loans, NPR, recession, securitizing mortgages, subprime mortgages, This American Life, US treasury bonds, WBEZ Chicago
Posted in Economics, Financing, General, Industrial, Office, Residential | No Comments »