Friday, March 27, 2009

The "Real" Facts Behind Commercial Real Estate

Unlike the administration, which deals in hope and promises, Zero Hedge believes that facts and empirical evidence tend to have a more justifiable reflection in securities prices. As such, I present a snapshot of the factual deterioration across the entire securitized CRE landscape, and the sad conclusion that with each passing day the inherent cash generating capability of these "assets" is becoming worse and worse. I hope to make this into a recurring piece every week.

Furthermore, the horrendous remittance numbers in CMBX 4 and 3 are starting to spread to old vintages, which is probably the most troubling trend. Also note the dramatic shifts in loss-given-default (LGD) between estimated and actual realized defaults: the jump from 30% LGD to 80% effective loss would demolish any BS book marks if this pattern becomes prevalent from most properties.

Better get that PPIP up and running soon before people dig into the cash flow fundamentals and realize what a true scam the plan really is, and go Poject Mayhem on the HQ of PIMROCK for being a complicit aider-and-abettor to what ZH affectionately calls the scam of the millennium.

CMBX.1 Update

The overall non-performing rate for CMBX.1 rose 11bp, to 1.21%. This does not include loans that were transferred to special servicing. Notable loans include:
  • GMACC 06-C1: 35 properties all tenanted by Mervyn’s, which filed for bankruptcy in July, 2008, formed the collateral for the $106.3mn DDR/Macquarie Mervyn’s Portfolio loan (6.37% of deal, SS-Cur). This is one of the three A-notes making up the $258.5mn whole loan. Loss given default is estimated to be 50%.
  • GECMC 05-C4: As mentioned above, the $106.3mn DDR/Macquarie Mervyn’s Portfolio loan (4.54% of deal, SS-Cur) makes up one of the other A-notes in the whole loan mentioned and given default; the loss estimate is 50%.
  • CD 05-CD1: The $58.0mn Union Square Apartments (1.53% of deal, 30 days), backed by a 542-unit multifamily property in Palm Beach Gardens, Florida, became 30 days delinquent this month. The average value assigned is $100k per unit and 24 months of advancing to arrive at 30% expected loss given default.
  • BACM 05-5: The $28.1 Livingston Shopping Center loan (1.46% of deal, current) cured from 30 days delinquency. This is despite dark spaces totalling 61% of NRA due to the Linens ‘N Things and Circuit City liquidations.
CMBX.2 Update

The average non-performing rate of CMBX.2 continued its upward trend with a 25bp increase, to 2.17%. Compared with the other large loans that went delinquent or transferred to special servicing this month, the delinquent loans in this series tend to be relatively smaller.
  • BACM 06-5: The average non-performing rate for this deal worsened 268bp this month, due mainly to four DBSI-related loans and a hotel-backed loan. DBSI Inc declared bankruptcy and is the subject of a class action lawsuit from TIC investor. The four loans in question totaled $36.4mn (1.64% of deal, 30 days); all became 30 days delinquent this month. The other delinquent loan is the $23.8mn Crowne Plaza – Cherry Hill loan (1.07% of deal, 30 days) secured by a full service hotel in Cherry Hill, New Jersey.
  • MLMT 06-C2: The $20.7mn The Shops of Fairlawn loan (1.54% of deal, 30 days) backed by a retail property in Fairlawn, Ohio, entered 30 days delinquency this month. Last reported DSCR (at year-end 2008) came in at 0.85x. The property also has 38% of space up for lease renewal this month.
CMBX.3 Update

A large number of loans in CMBX.3 were transferred to special servicing or are delinquent. The average non-performing rate increased 38bp, to 2.20%. Of note are the following:
  • BACM 07-1: The largest loan to be transferred to special servicing this month is the $220.0mn Solana loan (7.09% of deal, SS-Cur) backed by a mixed use property in Westlake, Texas. This is an A-note of a $395.0mn whole loan. The other pieces are another A-note for $140.0mn, securitized in JPMCC 07-LDPX, and a $35.0mn mezzanine note. The reason for the transfer is an imminent default due to cash flow problems. The estimated loss given default is 40%, based on a stressed cap rate of 9.5%.
  • CSMC 07-C1: The Mansions Portfolio loan (4.77% of deal, SS-Cur) is a $160.0mn loan secured by a portfolio of four multifamily properties in Austin and Round Rock, Texas. There is also a $20.3mn mezzanine debt in place. The performance of the two properties in Austin had deteriorated drastically, with DSCR dropping to 0.76x and 0.45x, respectively, last reported in March 2008. The loss expectation of the two Austin properties is about 50%, while the other two performing properties have loss expectations of about 10%.
  • MSC 07-T25: The $59.7mn Village Square loan (3.89% of deal, 60 days) is backed by a 237k sf retail property in Las Vegas, Nevada. The borrower is GGP, a regional mall REIT that is struggling under significant debt maturities. The last reported financials in July 2008 came in at 1.0x for DSCR. The former housing bubble state of Nevada had seen an associated weakness in the retail sector, and vacant spaces were either not leased or leased at approximately 30% below the average rate as at issuance. The estimated loss given default of this loan is 40%.
  • JPMCC 07-LDPX: As mentioned above, the second A-note of the Solana whole loan (2.63% of deal, SS-Cur), for $140mn, is securitized in this deal. Also of note is the $47.0mn Lembi Multifamily Portfolio loan (0.88% of deal, 30 days) backed by eight multifamily properties in San Francisco, California, which is in 30 days delinquent status. There is an associated mezzanine-note for $10mn. The servicer reported that the borrower failed to replenish debt service reserve as required. The most recent DSCR reported in September 2008 is 1.18x. A loss of 30% is estimated given default.
  • CD 07-CD4: The $117.0mn Loews Lake Las Vegas loan (1.78% of deal, SS-Cur) was transferred to special servicer due to imminent default. The loan is secured by a full service hotel in Henderson, Nevada. The most recent DSCR, reported in June, 2008, came in at 0.37x. 40% loss is expected given default based on a 10% cap rate.
  • MLCFC 06-4: The performance of this deal continues to worsen this month with a 153bp increase in the 30+ day delinquent rate, due primarily to two office loans, the $50.3mn The Parkdales loan (1.12% of deal, 60 days) and the $18.4mn Pentagon Park loan (0.41% of deal, 60 days) both backed by office buildings in Minnesota. No servicer’s comments were provided for either loan. The most recent DSCR, reported in September 2008, came in at 1.32x and 0.96x, respectively.
CMBX.4 Update

CMBX.4 is the worst series in terms of the average non-performing rate, increasing 42bp, to 2.19%. Notable loans include:
  • JPMCC 07-LD11: Similar to the Lembi Multifamily Portfolio loan in JPMCC 07-LDPX, the $90.0mn Lembi Portfolio loan (1.67% of deal, 30 days) is backed by 16 properties in San Francisco, California. This is also part of a whole loan that includes a $25.0mn B-note and a $17.4mn mezzanine-note. The most recent reported DSCR in December 2008 is 1.24x. The servicer also reports a failure of borrower to replenish debt service reserve as required. A loss of 25% is estimated given default.
  • MLCFC 07-7: The $45.0mn Mervyn’s Corporate Headquarters loan (1.63% of deal, 30 day) backed by a single tenant office building in Hayward, California, entered 30 day delinquency. Mervyn’s filed for bankruptcy protection in July, 2008. Appraisal for the property came in at $17.6mn and factoring in advancing would result in an expected loss of 80%, versus original estimates of 30%.
  • JPMCC 07-CB19: The $36.5mn Bronx Apartment Portfolio loan (1.12% of deal, 30 days) is yet another pro forma multifamily portfolio loan that is deteriorating. The collateral is two properties comprising 490 multifamily units in the Bronx, New York. A 35% loss is expected given default.
CMBX.5 update

CMBX.5’s average non-performing rate worsened 21bp, to 2.44%. Of note:
  • JPMCC 08-C2: The $25.0mn Regency Portfolio loan (2.15% of deal, 30 days) is the A-note of the $26.6mn whole loan (with a $1.6mn B-note) backed by a portfolio of 20 properties of various types in Iowa and Nebraska. The most recent DSCR reported in September 2008 came in at 0.66x.
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dvolatility said...

wow, thx

drkathe said...

great job setting the record straight with real research

Anonymous said...

Congratulations. You have proven that we are in a nasty recession.

Perhaps you are aware that IYR was trading 300% higher before we knew all this stuff.

Anonymous said...

TD - Thank you. Great Work

Anonymous @ 3 - why don't you go fist yourself!

In Debt We Trust said...

Continue the pure awesomeness that is zero hedge! For us lowly peons w/o access to Bloomberg terminals we have to rely on the old fashioned CUSIPS.

Dark Space said...

Well done. Any idea what is going on with Solana though? It was cashflowing fine just a few months ago - what was the straw that broke this camel's back.

Anonymous said...


Proof positive. Why did Congress demand a short timeline for FASB changes?? Maybe they knew about what in the pipeline.

Move Your Money Out of the Country… and Soon

I've posted a few comments about recent tax reporting changes for offshore banking activities. Read toward the bottom of this article, the part about Real Estate (zero reporting requirements). Also if you own the physical bullion make sure it's well guarded and in your posession.

Adam said...

Wow is rate. I work in CRE (but unfortunately without a bloomberg terminal) and your update is still mind blowing....seems like just the tip of the iceberg to me

Anonymous said...

Village Square owned by GGP? Check yourself. Owned by Triple Five.

Also, CMBS might be the one securiitized product where prices have overshot. 30% c/e super seniors will almost NEVER default, and if they do will recover a huge anount bc it's a huge class. Prices at 60 cents on the dollar are ridiculous. CRE train wreck or not, they're basically risk free.

Anonymous said...

TD. Great stuff.

So how can we little people trade this. SRS is all I know. What else should I be looking at?

steven said...

Very good site !

Anonymous said...

what does that mean? seriously. you list a bunch of loan going to servicing but you list them without context. are these loans different than say a year ago or 2 years ago. how do they compare historically?

btw i do not think commercial real estate is not healthy but the post is kindda misleading. and people here are going "wow" to what exactly?

Tyler Durden said...

It was my understanding that Summerlin Center is a partnership between Howard Hughes and GGP. (

Interesting to note that Village Center leases have dropped to 24 sq/foot compared to 30-45 sq/foot.

Also, on the other comment: this is merely last week's remittance data. as i said this is a snapshot. expect this kind of data tracking every week going forward. people are saying wow for the right reasons.

Anonymous said...


What does the "30 day" element mean in the context of reports like "$90.0mn Lembi Portfolio loan (1.67% of deal, 30 days)" ?

Is that how frequently that loan is supposed to make a payment to the trustee for the security?

Thank you.

Anonymous said...

Administrative note: Thanks for adding the IE7/IE8 enabled RSS feed code.

garbitrage said...

30 day means 30+days delinquent. Typically loan nonperformance data is bucketed into 30+, 60+, 90+, FCL (in foreclosure proceedings), and REO (real estate owned). Also the transfer into special servicing could mean a number of things, ranging from modifying the loan so that it becomes a performing loan again to foreclosing on the loan.

Unknown said...
This comment has been removed by the author.
Unknown said...

I've opined several times that the well capitalized lenders will be the hardest hit in this cycle, because they will wait to dispose of non-performing assets. This will become a problem that will likely threaten even what look like today to be strong institutions.

Anonymous said...

how can someone trade the CMBS market for their personal account?
I can't buy/sell loans obviously, so what other instuments are available in individual investor sizes?