March Records Fastest Ever CMBS Delinquency Deterioration In History According To TREPP

Tyler Durden's picture

On top of the previously announced record delinquency rate for Fannie, here comes some even worse news out of commercial real estate, which together with record high downtown vacancy rates, should be enough to push all REITs to 1052 week highs tomorrow. RealPoint has just released its March CMBS delinquency data, according to which delinquencies hit an all time high 6%. Not to be ignored, according to TREPP this number is even worse, at nearly 8%, after the single biggest monthly spike in 30 day + delinquencies.

In February 2010, the delinquent unpaid balance for CMBS increased by another $1.87 billion, up to $47.82 billion from $45.94 billion a month prior. Aggregate delinquency increased despite a slight decrease in 30-day delinquency. The overall delinquent unpaid balance is up almost 300% from one-year ago (when only $11.98 billion of delinquent unpaid balance was reported for February  2009), and is now over 21 times the low point of $2.21 billion in March 2007. The distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 26th straight month – up by $2.88 billion (9%) from the previous month and $29.36 billion (420%) in the past year (up from only $6.98 billion in February 2009).

As Stuy Town is still current on its payment, RealPoint expects an even greater acceleration in CMBS delinquencies over the coming months:

With the $4.1 billion delinquency of the Extended Stay Hotel loan, the expected delinquency of the $3 billion Peter Cooper Village / Stuyvesant Town loan, and the recently experienced average growth month-over-month, Realpoint now projects the delinquent unpaid CMBS balance to continue along its current trend and grow to between $60 and $70 billion by mid 2010. Based upon an updated trend analysis, we now project the delinquency percentage to grow to between 8% and 9% through mid 2010, potentially approaching and surpassing 11% to 12% under more heavily stressed scenarios through the year-end 2010). This forecast / outlook is driven by the watchlist reporting of several Realpoint identified High Risk Loans from recent vintage transactions that continue to show signs of stress and are on the verge of delinquency, along with continued balloon maturity defaults from more seasoned transactions. As part of our monthly surveillance efforts of every CMBS transaction, we continue to monitor in detail many large Realpoint Watchlisted loans that have never met their pro-forma underwritten expectations. This includes a large amount of loans that remain current in payments but have already been transferred into special servicing - many of which may ultimately default based upon a denial of requests for loan modifications or debt restructuring by the special servicers, or a decision by borrowers to surrender the collateral.

And RealPoint is the optimist. The other commercial real estate expert, TREPP, estimates that the situation is much, much worse, with March 30+ Days % delinquent CMBS hitting 7.61% after being just 6.72% in February. Then again TREPP already counts Stuy Town as in "foreclosure", something RealPoint still refuses to do due a technicality.

The delinquency rate for commercial real estate loans in commercial mortgage-backed securities (CMBS) stepped up sharply in March. After February’s numbers showed delinquencies beginning to moderate, there was some guarded optimism. February's increase had been the smallest bump in nine months. March data threw cold water on any notion that CMBS delinquencies might be nearing their peak. The delinquency rate for commercial real estate loans in commercial mortgage-backed securities (CMBS) stepped up sharply in March. After February’s numbers showed delinquencies beginning to moderate, there was some guarded optimism. February's increase had been the smallest bump in nine months. March data threw cold water on any notion that CMBS delinquencies might be nearing their peak.

According to TREPP the lodging sector is still the worst hit, followed by multifamily, retail, industrial and office. We anticipate that the strength in Offices is a function of aggressively renegotiated leases, which will impact office REITs most, once the projected cash flow never shows up.

Then again, who needs bad news when you have Atari controlling a now sentient SkyNet.

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Cognitive Dissonance's picture

"According to TREPP the lodging sector is still the worst hit, followed by multifamily, retail, industrial and office."

Let's see if I can rephrase that sentence.

"According to TREPP, the lodging sector is still the worst hit, followed by everything else."

Yeah, that's better. Shorter, more concise, harder hitting. To the point.

ghostfaceinvestah's picture

Isn't defaulting a "negotiating tactic" for CRE?

It is rapidly becoming that in RRE as well.  Expect defaults in RRE to spike as borrowers try to take advantage of principal writedowns.

MarketTruth's picture

Yes, defaulting is a tactic that borrowers are taking to force the hand of the banksters to revalue their loans. Since BHO said he was going to force banks to take a cut and revalue loans.... It makes financial sense to force the issue via non-payment of RE and CRE since those who are paying on time will not be eligible for such a revaluation.

Another tactic is asking to see the actual physical contract. Many banks can not produce the document, so until they can they can not successfully foreclose due to no proof in actually owning the property. Many have been very successful is living in their homes for well over a year payment free.

Another interesting part of contract law is that both parties have to put up something of value. CRE/RE owners have the physical items to present while banks have nothing. The timeline is such that banks have nothing to give you of equal/like value due to being fractional reserve and how the bankster system works. Before you sign the contract the bank has nothing to offer, it is only AFTER you sign the contract that then the bank can legally add in their ledger the loan value to their books. i know this sounds like legalese, yet small items like this can technically make or break a lawsuit.

As always, DYOD and get a good lawyer who knows the facts and inner workings.

Dantzler's picture

Ghost', I commented in the downtown NY Office vacancy article about the Columbia Center missed payment in Seattle.

Reflex' asked if this was an isolated event or reflective of general CRE conditions in Seattle (in light of REITs doing well lately). [comment-281444]

I'm a scientist not a finance guy, but I know you're familiar with Seattle. Would you care to comment? Reflex was curious about Silicon Valley as well.



Reflexivity's picture

I'd also be interested in your comment, Ghost.  Dantlzer thanks for asking the question.

non-anon's picture

Thanks for the non-April fools truth letting, will the FEDRES buy up CMBS trash next.

Also, read somewhere NYC has highest Commerical vagancy rate since 9/11. If I'm talking out of my ass, please forgive me!

Dr. Hannibal Lecter's picture

My Dear Friends,

If you think this is bad, wait until the tsunami of Option ARMs and Alt-A resets start later this year.  2010 will be a cake walk compared to 2011 thru 2013.



non-anon's picture

shit, I won't last that long, I'm looking at 2011 tops then I'm sol!

Wilderman's picture

I hear you, my financial future is over before the Mayan apocolypse unless things improve soon.  Built houses for 15 yrs and subdivisions for 10, pretty safe to say I need a new career path unless I move to Chindia.

Reflexivity's picture

Serious question/suggestion:  I am not in the res.  construction industry, but a good friend of mine is and he's in a similar situation.  He is seriously mulling over focusing his efforts on learning the details of the energy efficiency home improvement/remodeling industry (and abandoning new construction for the time being).  It's a bit tricky to be able to any quality financial modeling of potential profits because so much relies on tax credits that change constantly.  But my friend can't stop thinking about big the potential oppportunity to get involved in energy saving remodeling and construction projects.  If you've pondered this constructing 'niche' at all and would care to comment, please do.  Thanks.

hangemhigh's picture

Just do it.  In a down RRE market remodeling is the only place to be .  It's an effective strategy as old as the industry. But, with regards to 'green/energy efficiency' keep it simple.  The problem with alt energy projects is ROI.  You need a quick payback for going outside of the box and building something different.  Focus on what really matters first.  You want a tight building with controlled air changes that capture and contain heated/cooled air.  That means you spend money on high quality windows and doors, insulation; you also close all of the air change exits (holes/gaps/openings) in the buidling that would allow that heated/cooled air to escape. Double lock entries are a winner as is site orientation to take advantage of maximum solar heat/loss. Once you've got that under control then you look at more expensive options; solar panels, passive storage systems, etc.  Research the 'degree cooling days' for your region and use that as your basic design criteria.  Good luck.....................................

johngaltfla's picture

Gee, that was tough to foresee. The only question is, who is going to start picking up all of the empty anchor department stores in our malls. My guess is NOBODY.

Not to mention the 60%+ vacant industrial parks.

We're in BAAAAAAADDDDD shape down here in the Sunshine State....

Fritz's picture

REITS have again been ramped in a quest for yield by all kinds of non-dedicated funds (think 2007). 

Once the non-dedicated funds start blowing out of REITS I think they will hear two words: NO BID.

Matto's picture

Dr. H


I saw a report a month or so ago that alot of Alt-As were automatically resetting early as the previously approved drawdowns took the loans to 120% of initial value, bringing the reset trigger forward. Have you followed that at all?

Reductio ad Absurdum's picture

Every day Tyler Durden provides some new report about how CMBS has hit some new all time bad level, and every day commercial real estate (eg. as represented by IYR) goes higher in price. So either

1) the information is useless because the market ignores it

2) the information is useless because there are other good aspects to CMBS that are not being considered by Durden

Either way, the information is useless, so why bother reporting it? Is it so that when the commercial real estate market finally crashes (about 50 years from now) you can say "told you so?" Bah.

dnarby's picture

So go triple levered long CRE if that's how you feel.

The rest of us might look for somplace else to invest. 

I mean, we all know that the current system will go on as it always has, because there's no chance the various bankers of the world will ever stop trusting each other to keep to their agreements, right?

nedwardkelly's picture

3) It's a matter of time until the chickens come home to roost. Just because it's not that time yet, doesn't mean they're not coming.

mezcal's picture

SRS to the moon, baby.

Or at least, like, $6?

banksterhater's picture

IYR tecnicals sure look bearish, except volume perhaps.

SRS broke above its downtrend line


faustian bargain's picture

So, where's the online QE-termination countdown party?

perchprism's picture


Aw, everybody knows it's just going to become the online QE-recommencement vigil in a coupla months.

excellent's picture

Yeah because you know banks are definitely creating enough real cashflow to justify their prices Reductio what the hell kind of logic are you applying here.


Even using the term "the market" makes me want to vomit because as shows like Who Wants to be Mocked on TV and Jeopardy have shown us, people are dumb, and computers are even dumber.

JW n FL's picture

The middle market squeeze and consolidation of any and all real estate of value… minus those who have the wherewithal to re-purchase their own leveraged properties…


Plainly, Commercial Real Estate… leveraged with 20% injected equity and with an operating cash flow of 6% (a 6% cap rate)… even with a National Credit Rated Tenant with a “NNN” lease in place with 10 years left is still upside down… 20% plus… another 4 with a “NNN” lease in place with 10 years left is still upside down… 20% plus… another 4% minimum with regard to cash flow for the new, new, new squeeze reserve… Plainly it is credit arbitrage, the monies for securing the loan(s) cost no more at the FED Window… and the Banks are pocketing the difference which then drops to their bottom line as funds earned…


So a $1.4 Trillion dollar market(ish)… of which 20% more is needed in cash… and the 4% only holds water for the Crème’ de la Crème’… so… $300 Billion more in cash from property owners…


Last updated: March 30, 2010  12:25pm

Fed Closes Out Legacy CMBS Program





The newly minted “AAA” rated corporations that are now banks… get to pick thru pile for the best and leave the rest for the tax payers to pick the tab up on during the next rescue… Ya’ll know there is a new Commercial that will be needed? All of those properties the Banks don’t want? Someone will have to pay for them and it won’t be the Banks… it will be the Tax Payers, AGAIN!


The public tax trough is open for business and is the most profitable game going…


The triple “AAA” rated corps / banks who have been funded thru the United States Government… will continue to prey on Main Street… the middle market and feed at the tax money trough…


The rip off of the American Tax Payer… that is funded by the American Tax Payer… that is facilitated by the American Tax Payer paying for the Lobby dollars used against them… will be broadcast in digital quality… I wonder who will be blamed this time? After all of those monies where pumped into the Banks? Who will bare the brunt of the squeeze on the middle / bottom?  

Mr Lennon Hendrix's picture

Is there a planned date as to when Obamageddeon starts?  Or will this be a spontanious event?  I vote for next tuesday, 4 . 6 . 10.

Matto's picture

Surely this cant go on too much longer...??

Reflexivity's picture

As soon as I read your comment, I was struck by a disturbing thought:

Most of the time in history we are surprised by some terrible financial or social shock; financial shock is like a market bust or accounting scandal, or a social shock is like surprise attack in war like Pearl Harbor or 9-11.

My disturbing thought is this:  What if...seriously...what if...there is some unforeseen 'force' that is driving the market higher right now and this force is LEGITIMATE.  As happens all throughout history, we just can't see or currently understand in the present why this surprise good thing -- like the market rising against all sane expectation -- is caused by something real and positive.  Only after the fact will we all slap ourselves in the head and say, 'duh!'

Is this market upswing, despite all bad news like this CMBS delinquency, really caused by a legitimate positive black swan event?

THe only reason why I would give two seconds to mention this is that this is the time when surprises happen-->when everyone agrees in one direction only to be proved wrong by a positive or negative black swan in the other direction.

I guess my point is this:  we are now accustomed to being hypervigilant to negative black swans (thanks Taleb!), but I think we fail to remain equally vigilant for positive black swans.

Could there be a real, legitimate reason why the market keeps climbing and that we just don't see the reason yet???

(After paying heed to this thought, I immediately reverted back to a state of severe pessimism and conspiracy theory generation.)

docj's picture

Tick ... Tick ... Tick ... Tick ... Tick ... Tick ...

We all know what comes next, it's only a matter of when.  I'm figuring once we see that the Fed Income Tax numbers have collapsed the rout will be on.  Late April.

hamurobby's picture

I will bet we will not see "the truth" upfront, but a revision later in the year.

JW n FL's picture


by Mr Lennon Hendrix
on Wed, 03/31/2010 - 22:45

Is there a planned date as to when Obamageddeon starts?  Or will this be a spontanious event?  I vote for next tuesday, 4 . 6 . 10.

So... you taunt me with "Fox News” sound bites? Really? Are you sure that your one line response is accurate? You sound like you feed at the “Fox Independent and Accurate News” trough…


************* “Obamageddeon” ***************** (ur speeling sux)

Results 1 - 10 of about 222,000 for Obamageddon. (0.12 centons)


Bush Bank Bailout Overpaid by Billions: Study


So… I could take you all the way back to Reagan… when cheap credit began… but why?


Or minus the yappitty, yap… bla, bla, bla… or yada, yada, yada… I offer  this…











Total Spending






















Health Care













































(In Billions)


Reagan increased the national debt by 125%(ish)… but Reagan spent most of those monies at home…

In the plainest dumbed down vernacular I can muster for you, you ignorant fuck!


If you invest a Million dollars into your home… your home will be worth more than you paid for it… now if you maintain your home and the million dollars worth of improvements going forward you will have generated monies locally… the jobs created, the tax dollars paid and just having a really nice million dollar plus trailer to live in…


Bush… who had energy concerns for the Nation… went to Iraq.. with its 100 plus in Oil reserves… thus the whole history will vindicate Bush…

That video should give you a better understanding of Oil… and what it means and thusly why Bush did what he did… No Trade =’s War at some point in the future.


But you, quoting “Fox News” sound bites and blaming the Leftards… Commie’s… or whoever or whatever the newest catch phrase is… does not help you, your family or the World.


The Lobby controls the left and the right… there is no other power greater than the Lobby, for now… or more accurately until people like you, broadly wake the fuck up!


Banking Dollars to the Lobby…

714 client(s) lobbied for specific issues containing the word 'bank' (See all)

Here's the Top 50 (by number of bank mentions)

· American Bankers Assn

· Federal Home Loan Bank

· National Assn of Realtors

· Credit Union National Assn

· Process Handler Et Al for Hire

· Brassell, Robert J Jr

· Estate of Robert James Brassell

· Bank of America

· Goldman Sachs

· JPMorgan Chase & Co

· National Assn of Federal Credit Unions

· Securities Industry & Financial Mkt Assn

· Self Help Credit Union

· Independent Community Bankers of America

· Loews Corp

· Morgan Stanley

· Mortgage Bankers Assn

· Estate of Delois Albert Brassell

· HSBC Holdings

· Citigroup Inc

· US Chamber of Commerce

· Delta Airlines


· United Services Automobile Assn Group

· ACA International

· Consumers Union of the US

· Council of Federal Home Loan Banks

· Credit Suisse Group

· National Assn of Bankruptcy Trustees

· Delphi Corp

· National Assn of Home Builders

· Financial Services Roundtable

· International Council of Shopping Cntrs

· Advanta Corp

· Deere & Co

· National Cooperative Bank

· US Public Interest Research Group

· American Council of Life Insurers

· American Veterinary Medical Assn

· Clearing House Payments Co


· Principal Financial Group

· American Insurance Assn

· Cerberus Capital Management

· Coalition for Employment Through Exports

· Zions Bancorp

· Ameriprise Financial

· General Motors

· Air Line Pilots Assn

· Arab Bank



Really? The Banks are using profits to pay for their Lobby? not the 0% Fed Window?

**** "In the first three months of 2009, the financial sector spent $104.7 million to lobby Congress and the administration, down 8% from the same period last year" ****

So that I am clear... 2008 was a vintage year for Banks? they made soooooooooooooooooooooo much money on 2008 that in the first 3 months of 2009... they could drop $104.7 MILLION DOLLARS?


AR15AU's picture

I'll say it again...  why can't media outlets with vastly greater resources (CNN / NBC / etc) cover this story with even a fraction of the detail provided here?

faustian bargain's picture

Too many facts get in the way of a good story.

Reflexivity's picture

Have you ever heard of the story of the Hedgehog and the Fox?

To do what you want MSM journalists to do would require them to be foxes (skilled at both investigative journalism and high finance).  Unfortunately most MSM journalists are just one-dimensional hedgehogs (their one-dimension being journalism).

If they had more than a Rosetta Stone style 'language learning' course on finance, then they'd be much more fluent in finance, and thereby much more effective.

Tyler, Marla, et. al. are foxes.

orangedrinkandchips's picture

"If the thunder don't get ya then the lightning will".....The Wheel

Gromit's picture

There are often significant tax liabilities (debt forgiveness) if an owner walks away from a shopping center.

But the bank doesn't want to manage the property. So owner continues to operate, does not service loan, simply gives cash flow to bank. At this point owner has equivalent of OTM call option on asset as long as bank plays ball and deferral of tax bomb.

Neither party is interested in incenting quality tenants to invest in the center, so asset deteriorates as all parties try to reduce their expenses, tenants bargain down rents etc etc.

Game can run until net operating income goes negative.

signalfire's picture

I stopped watching the teevee news when I hung on thru a whole 'news' segment with Katie Couric or some other schill, who was promising me a 'special report' about some subject I was interested in, only to time said 'special report' and it lasted all of 1 minute, 17 seconds.  What about 'bought and paid for' in the main stream news do you not understand?

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