More on CMBS Market Deterioration: Riverton To Be Auctioned Off

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. Sphere: Related Content

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666 Fifth About to Go To Its Rightful Owner

Looks like the commercial mortgage apocalypse is about to claim its next victim, this time in the form of the appropriately numbered 666 Fifth Avenue building, home to such previously flourishing tenants as Citi Private Wealth Management. Now that private wealth is no more, Citi has decided to take a hike and has so far vacated over 80,000 square feet of space (and since it has over 482,000 sq feet in the building, one can bet it has a ways to go). As a result, the building's DSCR (or ratio of rent generated to interest owed for us non mortgage bankers) has fallen to an abysmal 0.69. Even when taking into account the $98 million (or much less) reserve fund the building has set aside to cover rent shortfalls, one can assume it won't be long before the 666 insignia again prominently graces the roof, especially since it would have to replace a laughable Citi sign.

The building was purchased from Tishman Speyer in December 2006, for $1.8 billion (all of it financed with debt) the highest price ever paid for an individual building in Manhattan, by Jared Kushner. Jared is prominent in the gossip pages for not only owning the gossip pages (he is owner of the New York Observer, which he purchased for $10 million at age 25), but for being wise beyond his years (a grizzled veteran at 28), for having good taste (he is engaged to Ivanka Trump), and lastly for being the son of Charles Kushner. One could say Tishman made out like a bandit on the sale, if only it hadn't used to proceeds to go and buy Stuyvesant Town for $5.4 billion, which is now also on the verge of bankruptcy.

Says Kushner "We are well capitalized and conservative and feel confident that we will do well with this over time.” He adds, “There’s eight years left on the debt, and we have $100 million in reserve so any inference that this building is in trouble or distressed is ridiculous, even in this crappy real estate market." Kushner forgets to add that he personally has no equity invested in the deal, so if he is wrong, it is only illiterate CMBS investors who will suffer by having their sizable debt investment wiped out.

Interestingly, another tenant of the building, is none other than Ezra Merkin's 14th floor neighbor. Mr. Englander's Millennium management, which has so far been spared the hedge-fund decimation that is pervasive amongst his peers, may be forced to look for new digs if young master Kushner decides to hike the rent for any remaining tenants in the building. Sphere: Related Content

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