Another wave of CRE handwringing
Posted on November 17, 2009 at 8:00 amIf you’re looking for even the slightest bit of optimism on the commercial real estate sector, you’re very much in the wrong spot. Fitch Ratings says the delinquency rate on office-building loans rose by a fifth in October.
“Though longer leases on office properties have historically mitigated sharp changes in performance, continued job losses are expected to increase pressure on the office sector,” said Managing Director and U.S. CMBS group head, Susan Merrick. “With the looming possibility of leases expiring on space under-utilized by companies that have downsized, office performance may not reach a trough for a few years.”
A page from First Horizon’s recently updated investor presentation provides a microcosmic view of how the property market is getting sicker. (Go to page 19.)
Worryingly, regional banks as a whole have a lot more CRE loans on their books as a percentage of their capital — although many bankers contend that this statistic is skewed by the inclusion of owner-occupied property loans, which they treat as more conventional C&I holdings.
SEE ALSO: Clusterstock’s concise, but detailed account of how we got here. For all the doom and gloom, it ends on a hopeful note (that I think isn’t meant to be ironic.)
Fortunately, this time around we have an advantage. We know how a contained credit problem can morph into a monster that destroys financial institutions and cripples the economy. Living through the housing bust may make us better able to cope with the commercial real estate bust. At least, it’s pretty to think so.
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File under: ‘Overly optimistic bankers’
Posted on September 21, 2009 at 7:54 amThe Lake Wobegon effect was in full effect at last week’s Barclays investor conference, where bankers of many stripes proclaimed that their commercial real estate portfolios will outperform the broader market. But as Michael Corkery of the Journal points out, that market likely has other ideas.
For the most part, banks have been able to contain commercial-real-estate losses by extending debt when it has matured so as long as the property owner can make interest payments. But that is likely going to get harder as rents decline, leaving the borrowers with less cash.
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One in six commercial mortgage securities worrisome
Posted on September 4, 2009 at 6:35 am
Fitch Ratings says the number of commercial real estate “loans of concern” grew by 7 percent during July. CRE portfolios are widely expected to provide the next big test for the financial sector.
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Two reasons why CRE is the next domino to fall
Posted on September 1, 2009 at 6:44 am
The first, say the Journal’s Lingling Wei and Peter Grant, is bad underwriting — the commercial equivalent of making mortgages to people who couldn’t afford them — that already is making its way through the system. The second factor will take a little longer to fully manifest itself.
By the end of 2012, some $153 billion in loans that make up CMBS are coming due, and close to $100 billion of that will face difficulty getting refinanced, according to Deutsche Bank. Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won’t be able to extend existing mortgages or replace them with new debt. That means losses not only to the property owners but also to those who bought CMBS — including hedge funds, pension funds, mutual funds and other financial institutions — thus exacerbating the economic downturn.
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Bankers clutch those purse strings tightly
Posted on August 17, 2009 at 5:18 pmSurveys published Monday by the Fed and the Treasury show that banks increased lending only to those with prime-mortgage-worthy borrowers during the spring.
Most banks said they expected their lending standards would be tighter than average until at least the second half of next year. For subprime companies and consumers, the majority of lenders said those standards will be stricter than normal for the foreseeable future.
SEE ALSO: The Fed and the Treasury’s announcement that they’ll extend the TALF liquidity program for commercial mortgage-backed securities through next June.
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Tennessee commercial mortgages struggling
Posted on May 18, 2009 at 1:29 pmFile this under ‘States we don’t want to be compared to right now:’ Updating its commercial mortgage-backed securities numbers, Fitch Ratings says only Michigan has a higher default rate than Tennessee. Fitch analysts also say it doesn’t appear the market is digesting the sour stuff.
While the loans secured by properties located in the worst performing states account for less than 6% of the Fitch-rated universe by balance, they make up nearly one-fourth of all real estate owned (REO) loans tracked in the index — an indication that special servicers are finding limited opportunities to work out or to quickly dispose of assets in these locations. Each of the preceding states has an unemployment rate significantly higher than the 8.9% national rate.
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