Friday, June 12, 2009

CBRE: This Has NOT Been A Liquidity Crisis, But A Crisis Of Bad Credit

Maybe the administration will finally listen when one of their own potential bailout beneficiaries tells them the sad truth about the inevitable CRE implosion. Surprisingly, a very good summary of the CRE debacle straight out of CBRE Partners (with $36 Billion AUM, it is just 3x larger than Cohen And Steers). Speaking of... Where are those CMBS downgrades S&P: getting some phone calls from the administration lately? Oh wait - looks like there is a backstop, and it is called Realpoint - in case you guys dont play ball it seems you will simply be taken out of the picture: after all just two AAA ratings are required, and looks like Realpoint is about to sell their soul to the devil. (Please say it ain't true Realpoint). From the Reuters article:
S&P shocked the the CMBS market last week by advising that its new models, if adopted, would likely prompt ratings cuts on 95 percent of top bonds issued during the peak of the real estate cycle in 2007 and 85 percent of CMBS from 2006. S&P is mulling responses from a formal request for comment.

Some 50 insurers have contacted Horsham, Pennsylvania-based Realpoint over the last few days, saying, "you guys need to get approved" by the NAIC, Dobilas said.

"Realpoint acts as a trump card to any action that S&P takes," he said. "We don't perceive any problem" getting approved by the NAIC, he added.

The NAIC, which represents all of U.S. state and territory insurance regulators, affirmed that Realpoint's application has been received by NAIC's Securities and Valuations Office.

Anyway, from the CBRE piece:
  • This has NOT been a liquidity crisis, but a crisis of bad credit
  • The system of human incentives and checks and balances was poorly thought out across the board: securitizers, banks, rating agencies, bond buyers, real estate investors
  • There was too much liquidity in the system, which led to rising prices, which led to relaxed underwriting standards
Also, Craig Schmidt should look at slide 6: "Valuing ’07 CMBS in an 8% Cap Environment: A Nightmare"

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hat tip Rob Sphere: Related Content
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