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Excluding GGP Trickery, CMBS Delinquencies Hit Another Adjusted Record High Of $30.5 Billion For July
RealPoint has released their July CMBS delinquency report, and if one adds the surprising switch of $4.8 billion in GGP loans which amusingly were returned to current payment status, the July delinquency total has hit a total of over $30 billion - an all time record.
In July 2009, the delinquent unpaid balance for CMBS decreased for the first time since August 2008 after 10 straight monthly increases, down to only $25.68 billion from $28.65 billion a month prior. The decline through July, however, came after nearly $4.8 billion of GGP sponsored loans were returned to current payment status following a 30-day delinquent status in June.
It seems nothing will stop the "data presenters" from trying all their best to paint as rosy a picture as they can. Alas, with GGP currently struggling through not just bankruptcy but the implications of a potential substantive consolidation, to think that there is anything that can be a long-term benefit to GGP's tenants in this environment as they vacate the mall operator's leases in droves is simply hilarious.
So here is how the latest data massaging will come as more and more REITs eventually succumb to dropping rents, while pretending that all is good:
While the ultimate resolution of these GGP-sponsored specially-serviced loans has yet to be determined, many were reported as current in July 2009 after multiple master servicers made modifications to their systems to account for the non-default rate interest-only payments being made on previously amortizing (principal and interest required) loans.
Luckily RealPoint has yet to fall for this particular ruse (even if the same can not be same for momo market chasers):
On the other hand, not all master servicers are accounting for the GGP payments and cash-collateral order in the same fashion, and these loans remain on our Realpoint Watchlists for potential future delinquency and / or workout via liquidation.
And here is RealPoint's adjusted version of the truth:
Even if the $4.8 billion of GGP-sponsored loans that returned to current payment status in July were omitted from the reported delinquency stats in June (effectively ignored for delinquency reporting purposes), the monthly trend of growth for CMBS delinquency would have continued. Specifically, after removing these loans, CMBS delinquency still increased from $18.78 billion in May 2009 (2.275%) up to a hypothetical $23.85 billion in June 2009 (2.92%), and then to 25.68 billion in July (3.135%).
In summary: CMBS loans delinquencies are still accelerating with no end to the collapse in sight, and the real pain is starting to focus on the 90+ delinquent category.
Despite the decline, the delinquent unpaid balance through July 2009 remains up an astounding 511% from one-year ago (when only $4.2 billion of delinquent balance was reported for July 2008), and is now almost 12 times the low point of $2.21 billion in March 2007. Outside of the 30-day delinquency decline, an increase in the remaining four delinquent loan categories was noted in July. More notably, the distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 20th straight month – up by $2.15 billion (15%) from the previous month and over $13.63 billion (377%) in the past year. The total unpaid balance for all CMBS pools under review by Realpoint was $819.2 billion in July 2009.
For the full RealPoint report, click here.
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Funny, I spoke with a tenant of a major public reit and the tenant couldnt afford the lease anymore. Rather than leave the space, the tenant unilaterally decided to start paying a % of sales to the landlord, who, refuses to negotiate a new lease but also will not evict the tenant.
I think a lot of this is going on. REIT still books the income, calls it a short term accounts receivable and on the surface, everything is normal.
I think this is prevalent in many retail mall spaces.
clearly, much better than expected. makes one want to short srs, eh? lol.
Simon Johnson, MIT Sloan Professor and co-founder of The Baseline Scenario blog, will be online on Tuesday, August 25 at 1 p.m. to discuss President Obama's renomination of Federal Reserve Chairman Ben Bernanke.
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Fed loses lawsuit against bloomberg. will have to reveal $2 trillion donations...how come tyler does not have that on headlines...?
because he had it on last nite about 30 seconds after the ink dried.
Ouch, at a very optimistic 70% recovery rate on those loans, that's still about a 1% monthly total loss (and it's only rising). How long can such staggering losses be swept under the rug - err TARP? If this is the case across the board, that would mean BAC can expect somewhere on the order of $120 billion in losses over one year on their 1 trillion in CMBS?
wow....
Just waiting for someone to discredit my math, I'm sure the generalization gives it considerable error, but I think it is still of the right order of magnitude. However even after all I've seen in the past few years, this number just still seems unbelievable so I hope I'm wrong...
I thought there was only something like $819 billion in CMBS outstanding. How could BAC have $1T?
I'm looking for where I found it right now, read it a day or so ago...
I don't know the exact number but there is way more than $820 billion CMBS out there.
Definitely not $1T CMBS on BAC's B/S
I can't seem to find where it was, it was a list of the banks the most exposed to CRE, with BAC by far at the top with 1T. It definitely can't be direct loans, but maybe through additional CDS that could be their total exposure... Right after the list it stated how GS and MS combined had something on the order of 20-30 billion, showing how the smartest money knew to stay away... Can't seem to find the reference now, I thought it was here at ZH.
here you go Deficient http://www.ritholtz.com/blog/2009/08/bank-holding-companies-ranked-by-commercial-real-estate-loans/
Thanks CB!
Ack, I really am deficient, the 1T figure is total loans not just CRE, I read it wrong, I knew it sounded ridiculous!
I don't understand why the tenant would want to do this, as it just leaves it open to future lawsuits. Might as well just threaten to walk away and force a renegotiation.
Sounds like green shoots to me. :>)
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This is no cause for concern. This merely requires the issuance of more debt via Treasuries.
These are great times of financial innovation.
All possibility of failure has been successfully sequestered to the future.
As an owner of $60MM in retail, I can tell you that anyone that has bought since 2004 is viewed as underwater. For example, we have a $20MM loan coming due, our NOI is 70% more than acquisition, but the loan amount available is at best half of the original loan(this the same lender, no new ones exist). Not only that but asking rates and proposal from whatever tenant is easily half. We had a deal last fall for 30,000 SF at $7NNN with no tenant allowance, now that space is $4NNN with $25/SF tenant allowance in a major market. I wish people were paying more attention that the fact that many owners are insolvent in this frozen landscape and banks are helpless in finding a way out until the CMBS markets open up again.
You are not alone...
http://newsletters.agc.org/buildingmaterial/files/2009/08/future-refinancing-crisis_71509.pdf
Refinancing problems could potentially take down solvent property. Fortunately we still have several years to go before we need to refi... hopefully things will look a little better then. In the meantime try to get leverage over whoever is holding the paper, photos with hookers, envelopes stuffed with cash... you know... double-down on the usual and pray!
I was at The Block in Orange California over the weekend. There used to be high end stores there, but now there are food places, a theatre, and what appear to be outlet stores. Upon looking at who the property developer is, it is the Mills corporation (The Ontario Mills). How sad.