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"The Future Refinancing Crisis in Commercial Real Estate"

nickbarbon's picture




 

Surprisingly this isn't the title of an alarmist book by an obscure author urging you to buy krugerrands and remote arable property. Instead it's a sober, substantive quantitative analysis series by Deutsche Bank's very smart Richard Parkus. In his first installment from April 23rd, the question being answered was "Assuming that all currently outstanding (and non-defeased) commercial mortgages in CMBS deals reach maturity without defaulting, what proportion would qualify to refinance?" The answer:

"under reasonable assumptions, an extraordinarily large proportion of loans, perhaps 65%, or more, might well fail to qualify to refinance, at least without large equity infusions ... the massive paradigm shift in underwriting standards, combined with 35-45% price declines and severely depressed cash flows, would likely strand a vast swath of the commercial real estate debt markets."

 

In Part II published yesterday, DB concludes that:

• Total losses [i.e. the sum of term and maturity default related losses] on the outstanding CMBS universe will be in the 9-12% range

• Total losses on the 2005-2008 vintages will be 11.6-15.3%

• Total losses on the 2007 vintage will exceed 21%

 

Parkus: CMBS

 

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Fri, 07/17/2009 - 19:55 | 9102 Lets_Eat_Amen
Lets_Eat_Amen's picture

...and this is the same paper that held at near Par value for the banks, right? 

 

I don't know if many of you guys have talked with people about real estate, but I know people among the commercial and residential world literally believe that things are going to bounce back.  The wash out rate of these companies is going to be incredible.  There will be a lot of opportunity for property management companies that hold no investment in the business but manage defaulted properties for banks.  i'm already seeing that happen.

Fri, 07/17/2009 - 17:04 | 9019 ZerOhead
ZerOhead's picture

Awesome post congrats to nickbarbon. After watching our line of credit evaporate last summer I'd wade through a leech infested swamp naked for this kind of analysis. Read not at your own peril Anonymouse!

Fri, 07/17/2009 - 13:18 | 8810 Anonymous
Anonymous's picture

Yeah... the new site is so bad right now... it will slash your traffic in half. People value their time. If sure you guys will get it right soon.

Fri, 07/17/2009 - 13:21 | 8811 Tyler Durden
Tyler Durden's picture

The load times here are half of blogger. Also with the latest barrage of DMCA blogger will not survive. People value their time, as do we, but based on the huge jump in traffic on this site, they value the content much more.

Sat, 07/18/2009 - 00:08 | 9221 Assetman
Assetman's picture

I'm sorry to disagree, Tyler.

I understand your points, but this layout blows ass.

Fri, 07/17/2009 - 13:01 | 8783 Anonymous
Anonymous's picture

Waht i the link to this updated report?

Fri, 07/17/2009 - 06:16 | 8545 Anonymous
Anonymous's picture

Could you PLS tell your webmaster that:
1. this fixed three column skin sucks?
2. the width of the screen (background) should be floated and/or the backside panels should be switchable.The second option can be turned on in administration/../boxes/
3. the top stories takes so much space, where it shuld be enough of a wide and flat box with just the titles and highlits.

If the skin will not be optimized, I regret no to read you anymore on my narrow screen.
Best regards.

Thu, 07/16/2009 - 23:42 | 8463 nopat
nopat's picture

I'm surprised you aren't seeing more lease re-paperings going on to pad the shit out of the balance sheets.  Granted it doesn't help your cash position much, but it goes a hell of a long way to tell an investor that x% of your portfolio of y credit rating is locked into a multi-year agreement with known/fixed escalators, especially if you can get the maturities to overlap.  During the next earnings calls I would expect to hear "straight-line revenues" to be the term du jour.  REIT gets a new contract, tennant gets a rent-free period and at least some cash relief until Goldman decides to turn on the hurricane machine and everyone wins the insurance lottery.

 

The optimist would say the REIT sales team isn't as savvy as the finance team and maybe there's some hope in an accounting loophole.  The pessimist would say the sales team isn't as savvy as the finance team and they've been quietly re-papering the shit out of their contracts to the point where there will be a ricockulous non-cash liability once these deals get past the half-way mark in their term, on top of the already huge "shadow" of zombie contracts out there waiting to get past their rent-free period and into the bad-debt-writeoff bucket because these companies don't exist anymore.  Heads they win, tails we lose, even if what I wrote is complete horseshit and does nothing but display my ignorance and limited knowledge of FASB.

Thu, 07/16/2009 - 23:05 | 8430 Bubby BankenStein
Bubby BankenStein's picture

Wow, Great analysis!  Something that actually makes sense.

I wonder what would happen if the rating agencies were under the thumb of a Czar named Richard Parkus.

Anyone who cares to evaluate the data knows that on a long enough timeline, real estate lenders and investors are hung out to dry.

Thu, 07/16/2009 - 23:01 | 8424 themovement
themovement's picture

I wonder how this will affect the unemployment numbers.

Thu, 07/16/2009 - 19:23 | 8211 Strom
Fri, 07/17/2009 - 14:12 | 8846 lkimball
lkimball's picture

Do you know the link to this new report?

Mon, 07/20/2009 - 00:07 | 10141 Anonymous
Anonymous's picture

No, but I got it by emailing the authors of the first one...

Thu, 07/16/2009 - 19:31 | 8224 Strom
Strom's picture

Maybe the Senate will get a takedown notice for this link?

Do NOT follow this link or you will be banned from the site!