Bruzzone Strategics

Cracking the new world of securitized loans - CMBS 2.0

 

SAN FRANCISCO, CA --  With $1.4 Trillion collateralized loans coming due in the next  48 
months, and 9.2% of all such loans 30 days past due, you would think that  Wall Street and lenders might be hesitant to originate new commercial mortgage-backed securities (CMBS).  Not so.

In this well written piece by Matt Hudgins for the National Real Estate Investor, you'll gain insights into what is being referred to as "CMBS 2.0".

The new generation of CMBS seeks to address investors' concerns over previous securitization practices pertaining to disclosure. New deals remove perceived conflicts of interest among the bondholders and shift authority over the special servicer away from investors in the riskiest class of bonds to those at the top of the capital stack.

The innovations seem to be working.

U.S. banks persist through foreclosures to avoid the inevitable

SAN FRANCISCO, CA --  By choosing foreclosures to short sales,  and stockpiling billions in foreclosed properties, U.S. banks are postponing the inevitable --- a necessary but painful hit to  their financial statements.

Worse, the banks' stockpiling-versus-disposing reo's has stalled the recovery of the commercial and residential real estate markets.

Sam Zell's predictions for commercial real estate, including end of lenders' "extend and pretend"

SAN FRANCISCO, CA -- Sam Zell, a leading distress property investor, makes several predictions in a Reuter's report --- including the end of the lenders' "extend and pretend" when it comes to underwater loans on commercial property.  Here is the text of the report:

Zell sees little new U.S. commercial property

By Ilaina Jonas

NEW YORK, Dec 14 (Reuters) - Real estate mogul Sam Zell said he expects little U.S. commercial real estate construction over the next one to three years except for apartment buildings, a hiatus that would restrict supply and boost the value of existing properties.

With QE2, bank lending and loan demand fail to improve

SAN FRANCISCO, CA -- From the International Business Times, initial report on the Federal Reserve's 'quantitative easing' indicates little improvement in lending:

Fed chairman Ben Bernanke's promise that a new round of quantitative easing (QE) worth $600 billion will breathe life into lethargic bank lending and spur growth appears headed for doom.

A new survey by the Federal Reserve has unveiled a disappointing scenario in the credit market: New demand for loans is dropping off, housing demand remains week, more banks have tightened norms for mortgage loans and small businesses' appetite for credit is seriously dented.

Special servicers allow loan assumptions..in Arizona, for now

SAN FRANCISCO, CA --  We note with interest a report in the National Real Estate Investor October 2010 issue which begins:

A court decision in Arizona may provide a blueprint for special servicers across the nation as they seek to recover the value of defaulted loans rolled into commercial mortgage-backed securities (CMBS).

In a landmark case, the Arizona Superior Court allowed San Diego-based receiver Trigild Inc. to sell seven Arizona apartment complexes — over the objections of the borrower — without requiring the special servicer to foreclose on the properties.

A first for Arizona, the Aug. 2 ruling enabled buyer Standard Portfolio to assume the portfolio’s existing CMBS loan, which carries more favorable lending terms than newly issued loans in today’s turbulent debt market.

Eye on the Market: Equity Funds Return Equity

Wall Street Journal

May 27, 2010

By LINGLING WEI

Some real-estate funds, which raised billions of dollars hoping to pounce on bargain properties, are returning money to investors after finding slim pickings, as many banks avoid dumping property by extending and restructuring loans.

A slew of private-equity funds, including ones run by Morgan Stanley, Rockpoint Group LLC and Chicago developer John Buck's firm, have taken the unusual step of allowing investors to exit their funding commitments when the funds' investment period expired. A total of 19 private-equity real-estate funds have either returned or plan to return more than $6 billion of capital to investors, said Real Estate Alert, a trade publication. Others have sought to extend their investment periods or change their investment mandates in light of the short supply.

Reality Check: Home Foreclosures, Deliquencies Up

SAN FRANCISCO, CA--  Back to basics.  The housing market and its collapse forged the current real estate investment environment.  It impacted all investors from single family investors to large equity funds, and of course, caused a near melt down of the country's credit markets -- hence the economy itself. 

So it's prudent to keep a steady eye on ground zero.  Consider this from "Market Watch."

The inventory of foreclosed homes in the U.S. hit a record in February, a sign that the real-estate crisis is lingering, according to data released Monday by a leading mortgage processor.

Lending: Loan Velocity Still Slumbering Along

SAN FRANCISCO, CA -- Banks have little money to lend.  Not surprising.  But it may be regulators not the free market who have had the biggest impact on the dramatic drop in new loans over the last 12 months.

With regulators pushing lenders to amend and extend loans, loan's maturing in the next two year's will more likely remain in bank's portfolio's, not rolled over for new loans --- $150 billion due this year, $170 billion next year.

The market for commercial real estate securities have dried up.  How much?  In 2007, investors bought nearly $20 billion a month.  In January of this year, only $80 million.  That's million, not billion.

Obama's Bank Reform Plans Could Lead to More (Risky) Real Estate Development Lending

SAN FRANCISCO, CA -- The Obama Administration is seeking to limit the size and trading activities of financial institutions as a way to reduce risk-taking and prevent another financial crisis

The President wants to curtail private-equity and hedge-fund investments, the plan bars banks from running proprietary trading operations solely for their own profit.

But it may have another unintended consequence -- more risky loans to real estate developers to make up the profits lost.  So suggests Martin Baily, a former White House economist now with the Brookings Institution in Washington.

Commercial Loan Crisis: No Bottom in Sight

SAN FRANCISCO, CA --  Several key national real estate brokerage houses and industry media sources are announcing the bottom to the commercial real estate crisis.  Not so.  We believe the heart of the storm has just begun and no one can say when it will end.

Consider a more somber report from Bloomberg News: