Commercial Real Estate Marking: CMBS Relative Value

At first opportunity (but not for a few days) I will write an extended post on the cash flow dynamics of both CRE whole loans and CMBS. There seems to be too much confusion on the topic, which is at the heart of the "is the price fair/is it not fair" argument for the toxic asset bid/offer disconnect in the PPIP. Below is a good chart I tracked down which shows the most recent prices on sub-AAA CMBX tranches, and how this flows through in terms of spreads, loss rates, loss timings, average deal losses and a market-to-base case (flat loss assumption) ratio. Not surprisingly the MTB deal loss ratios become more pronounced the higher up in the pool one goes, with the AJ likely having the best or worst bang for the buck (AAA is excluded from this analysis), depending on one's optimism/pessimism. Curiously, based on market implied statistics, the 2006-2008 vintages rated A and below have an average 100% loss within 3 years!Some other concepts to consider: the dominant role of GSEs and commercial banks in CMBS issuance, the lagging DSCR impact on longer-dated lease term properties (office and retail doing better than multi-sector for now: 2006 vintage average leases begin rolling this summer, should make for a curious move in DSCR), the transition of numerous IOs to amortizing, the CMBX-cash basis (negative blow out in December thru February) an substantial convergence recently implying securities liquidity considerations are mitigating (together with the ability to blame the market for mark aberrations), and lastly unemployment itself: CMBS delinquencies peak 1 year after unemployment bottom inflection point. 

thanks to Lehman for raw data