In a very interesting development for the CMBS market, and one which could lower mortgage-backed trading levels significantly, Riverton Apartments (what better example of a real estate bubble than a leveraged purchase of a housing project in Harlem), which was the first New York apartment complex to spook the CMBS market when it defaulted on interest payments last year, will be auctioned off on February 20, as owners Rockpoint Group and Stellar Management have been unable to modify loan terms. This should be scary news for mortgage-backed security investors, as the CMBS market has been trading at inflated levels recently, and a market test-based clearing price for a typical bubble property would impact lower (and higher) rated tranches across all CMBS vintages.
The Riverton loan was packaged into bonds as part of a $6.6 billion CMBS offering in March 2007 by Citi and Deutsche. As CMBS data aggregator TREPP estimates, the Riverton property, which was originally evaluated at $340 million and could now be worth as little as $196 (or lower), this reduction in value would imply a loss for the CMBS bond trust of $29 million.
Riverton, was originally planned to be converted from a rent-stabilized to market-rate property, which is the same logic behind BlackRock and Tishman Speyer's $5.4 billion purchase of Stuyvesant Town and Cooper Village, which is also on the verge of a massive default.
We are waiting with baited breath to see the next major property on the cusp of bankruptcy, 666 Fifth, to go under.
In the meantime, public commercial REITs today are seeing 10% + drops and 52 week lows on a combination of bads news. SPG, VNO, EQR, PLD, SLG and BXP are all testing recent and historical lows. Which is of course good news for all holders of the SRS real estate ETF.
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