A little light bed-time reading for everyone…the Congressional Oversight Panel has issued a 190 page report detailing the risks posed by CRE loans. Full document is below and the COP web site is here.
February 18, 2010
December 9, 2009
FDIC Projection of Losses from Bank Failures to Date
FDIC estimates that about $51 billion in losses will occur as a result of the 177 bank failures to date. Below is a spreadsheet providing details of projected losses by bank. The data is courtesy of Subsidyscope, which conveniently supplies all of its data in open formats. I have prettied it up (just a little), sorted by estimated loss, and provided a total. About 1/5 of the total is for IndyMac Bank.
Geithner talks about expanding TALF to benefit CRE
I received an e-mail from Treasury this morning which contains a letter which Secretary Geithner has or is sending to Hill leadership on the administrations’s exit strategy for TARP. Most importantly for the CRE world, it holds out some hope that TALF (Term Asset Backed Securities Loan Facility) “may” be increased:
…”we may increase our commitment to the Term Asset-Backed Securities Loan Facility (TALF), which is improving securitization markets that facilitate consumer and small business loans, as well as commercial mortgage loans. We expect that increasing our commitment to TALF would not result in additional cost to taxpayers.”
We’ll see what they actually do, but this is definitely welcome news for those facing loan maturities in the next year or two and it might even help to stop or slow the free fall in commercial real estate pricing.
Letter below…
October 23, 2009
The Fed as Perpetuating and Exacerbating Boom and Bust Cycle
Peter Boone and Simon Johnson argue recently in The New Republic that the Fed’s efforts to soften the recession and encourage recovery are sowing the seeds of the next, more painful crisis. The article provides an interesting perspective on the history of the Fed and suggests that banks are being provided too much incentive (largely by the Fed’s backstops) to take excessive risk. It’s disconcerting to say the least that there is no material reform of banking regulation underway.
October 16, 2009
Capital Economics argues that CRE loan defaults will not crater the banking system
Capital Economics’ US Economics Weekly released today argues that CRE loan losses pose little risk of bringing down large banks (>$1 billion in assets) as only 18% of these institutions’ loans are CRE. For smaller banks (<$1 billion in assets) the risk of CRE losses causing bank failures is much greater since 40% of their loans are CRE. While both the default and charge off rates have been increasing dramatically, they do not see them reaching levels on a system-wide basis that would call the viability of the sector into question.
October 9, 2009
Subsidyscope map of TARP funds
Subsidyscope has put together a really neat map tracking where TARP funds have gone. The databased driving the map weaves together data sets from Treasury, Fed, FDIC, and other sources to put together what is perhaps the clearest picture yet of where TARP funds have gone:
http://www.subsidyscope.com/projects/bailout/tarp/map/
The hotspots basically track the biggest housing bubble markets…California, Nevada, Arizona, Florida…now that makes more sense than the government maps which show TARP funds as going only to the region where a bank is headquartered.
September 25, 2009
Real Capital tracking increasing distress within Bank CRE loan portfolios
CMBS tops the list by lender type, but there is plenty of distress to go around. As has been discussed thoroughly here and elsewhere, unfortunately CMBS not only shows the greatest volume of distress, but due to the nature of how it is structured, has been the most difficult to move towards any sort of resolution.
CBRE Multi-Housing Group hosting regional client forums
CBRE announced via e-mail this morning that their multi-housing group will be running conference calls for six weeks in a row beginning October 9th to discuss multi-housing trends and transactions in each region of the U.S. Should be useful information as multi-housing has attracted probably the greatest interest during the recession from institutional investors.
Announcement below:
CBRE Multi-Housing Group
Regional Client Forum Series
Save the Date!
We are pleased to announce the schedule for our Fall 2009 Regional Multi-Housing Client Forum Series.
Beginning October 9 with the Northeast & Mid-Atlantic region, and continuing each Friday for six more weeks, the calls will bring in-depth insight into the multi-housing markets across the U.S.
Every Friday, Oct 9 through Nov 20*
11:00AM – 12:00 PM EST
Forum Schedule (subject to changes):
Northeast & Mid-Atlantic Region – Oct 9
Southeast Region – Oct 16
Florida - Oct 23
Midwest Region – Oct 30
Southwest & Texas – Nov 6
Southern California – Nov 13
Northern CA and Pacific NW – Nov 20
:: Topics include ::
Financial Market Overview
Local Market Overview
Who is selling?
Who is buying?
Looking forward: Market Expectations
Q&A
*Each call will be recorded and available for playback
For more information on any of the regional calls, please click here to send an email, or call 617.488.7241.
September 22, 2009
New Treasury guidance regarding CMBS loan modifications
Treasury has issued new guidance regarding CMBS loan modifications, clarifying that:
1) Loan modifications can be considered at any time without tax consequences for the trust in which the mortgages are held
2) Loans can be modified even though they may not currently be in default if there is significant risk of default at a later date
This should allow a lot more owners to hang onto properties and ride out the downturn in the economy, which is causing decreased cash flows and large value declines. Modifications will likely reduce the number of distressed property sales in the next few years, but there will still be plenty of distressed opportunities for sale. Many properties are simply so far “underwater” that it will make more sense for lenders, whether CMBS servicers or others, to foreclose or resolve the issue in some other manner. The extending and pretending (even with modifications) can only go on so long for many of these properties.
How should the FDIC be shored up?
FDIC needs some serious shoring up after bailing out 94 banks so far this year. It’s balance sheet now shows some $10 billion in cash vs. about $30 billion at the start of the year. Should it raise cash for future problems by:
a) Raising premiums banks pay?
b) Requiring banks to pre-pay next year’s premiums?
c) Borrowing from Treasury? (can tap $100 billion credit line from Treasury)
d) Borrowing from banks by issuing bonds? (allowed by law after the early 90’s bank meltdown)
Raising premiums on banks will likely put them under greater stress. Pre-paying next year’s premiums seems silly–what happens when there are continued bank failures next year and no premiums coming in? Borrowing from Treasury and the healthy banks seems like the right route here. It avoids putting greater stress on the unhealthy banks and it relies on Treasury (i.e., taxpayers) to shoulder some of the burden (politically unpalatable as this may be). Premiums probably need to go up as well for the sake of FDIC’s future solvency, but raising them right now is a bad idea. FDIC is an absolutely critically important institution, guaranteeing some $4.8 trillion in deposits. Let’s get it back in shape to handle the bank failures still on the horizon.
Update on 9/29/09:
Well, well, FDIC plans to go the silly route…and even sillier than I thought. They will be collecting not only next year’s premiums this year, but also 2011’s. Gee, um, boss, my expenses are higher than expected this year, can I have the next two years pay this year? That would fix everything. This makes no sense.
NYT article here .
August 26, 2009
NREI panel describes hotel market distress
Audio from the call should be available in 24 hours on NREI web site…slides are below…
August 19, 2009
Joint Economic Committee hearing on CRE loan problems
On July 9th, 2009, the Joint Economic Committee of Congress held a hearing regarding the tight CRE lending environment during which Chairwoman Maloney referred to the problem as a “ticking time bomb”. Testifying before the committee were:
- James Helsel, Treasurer, National Association of Realtors
- Jeffrey D. DeBoer, President & CEO, The Real Estate Roundtable
- Richard Parkus, Head of CMBS and ABS Synthetics Research, Deutsche Bank
- Jon Greenlee, Associate Director, Banking Supervision and Regulation, Fed
Jeffrey DeBoer of The Real Estate Roundtable referred in his prepared testimony to CRE’s struggles with values and lack of loans as a “market failure of catastrophic proportions” with the potential for a “cascade of negative repercussions for the economy as a whole.” He went on to say that he was there to “sound the alarm bell.” DeBoer offered the most concrete solutions for mitigating the problem, which included:
- Extending TALF (subsequently it was extended)
- Establish a Federally backed credit facility or a privately funded guarantee program for originating CRE loans
- Amend or repeal Foreign Investment in Real Property Tax Act (FIRPTA) which has effectively discouraged foreign investment in CRE
- Encourage banks and loan servicers to extend performing loans and temporarily amend REMIC regulations to facilitate early review and loan modifications for securitized loans
- Reject new anti-real estate investment taxes such as the carried interest proposal and provide a five year carry forward for net operating losses of all businesses
Richard Parkus of Deutsche Bank basically reiterated his prior testimony from other hearings, essentially agreeing with DeBoer that the tight lending conditions for CRE are severe, consequences for the economy as a whole are enormous, and measures should be taken to revitalize CMBS and CRE lending in general. In follow-up questioning by Sam Brownback, Parkus said that he thought CRE would not see any real improvement until 2012 and that CRE values from peak to trough would drop 40-45%.
James Helsel of the National Association of Realtors and Jon Greenlee of the Fed offered little in the way of concrete solutions but provided additional testimony depicting accurately the current state of affairs in CRE.
Complete video and transcripts of the testimony are at:
July 30, 2009
First half ‘09 CRE transaction activity
Real Capital Analytics has released its Capital Trends Monthly reports for June, including first half ‘09 summary. A few key notes:
- Volume at 7% of peak market but up in June, possible start of upward volume trend?
- Prices off by 37% based on Moody’s/REAL index, including 18% drop in first 5 months of ‘09
- Large deals, $50 million and up have seen much greater uptick in cap rates due to difficulty in financing
- Apartment and industrial cap rates holding basically flat so far in ’09 while office and retail cap rates continue to increase
- Distressed assets tracked by RCA total $114.6 billion now, more than double $ at beginning of ‘09, with hotel and retail distress accelerating the most in 2009
- Less than 10% of identified distressed assets have reached resolution
- High level of distress in secondary and tertiary markets, as well as certain primary markets you would expect, including Las Vegas, Detroit, Miami
July 23, 2009
A few examples of how the recession is hammering golf courses and golf related devleopments
While my vocation is real estate, my avocation is golf, so I am always interested in the intersection of the two. As the National Golf Foundation has been reporting for years, participation in golf has been flat to declining and in recent years as many courses have been taken out of commission as have been built. Courses are expensive to construct, ranging generally from $3 – $8 million in total cost for most courses and competition across both private and public courses has been intense…too many courses, too few rounds. Below are a few recent examples of how the recession is affecting golf course properties:
Twin Eagles in Naples, FL closed in early July as ownership likely heads towards bankruptcy:
http://www.naplesnews.com/news/2009/jul/07/twineagles-golf-club-may-be-closed-financially-str/
Macatawa Legends in Holland, Michigan was foreclosed on by its construction lender:
http://www.hollandsentinel.com/news/x931230912/Legends-heads-to-18-million-foreclosure-sale-Thursday
St. Regis Monarch Beach Resort (site of the notorious AIG junket) foreclosed on by mezzanine lender Citigroup:
