Moody's: CMBS loan delinquencies keep increasing

Hard times for the holders of CMBS loans.

Structured Credit Investor reports:

This data has come to light on the same day JPM successfully marketed JPMCC 2010-C1; this years biggest CMBS offering [which we have discussed, in depth, during past few days], twice the size of the CMBS structure RBS marketed in May.

The sale went as following [per Wall Street Journal]:

J.P. Morgan Chase Commercial Mortgage Securities Corp. sold a $716.3 million bond backed by commercial mortgages on Friday, the second such deal this year and the first to include a portion without an investment-grade rating.

The security, made up of loans to primarily retail stores, is just the fifth CMBS deal since the market froze during the 2008 credit crisis. The sale of the deal is another sign of investors' continued appetite for high-yielding securities, even amid jitters about the health of the global economy, the debt woes of Europe and a rise in delinquency among commercial real estate loans--to nearly 10% from below 1% before the crisis.

Aware of the risks, issuers and investors alike are doing their homework on these securities, which is why so few deals have been completed.

Many so-called structured-finance deals are taking four to six months to put together, said Paul Norris, senior portfolio manager at Dwight Asset Management in Burlington, Vt.
"We expect more deals to come, but it will take time because of the due diligence being done on any structured-finance deals," Norris said.

This one has several features typical in securities issued during the market's peak in 2006: It includes loans to multiple borrowers and on differing property types. That complicates the process of assessing creditworthiness

Underwriters expect the market for commercial mortgage-backed securities to ramp up in the second half, as institutions try to securitize loans made in the first six months of the year.

Barclays Capital researchers estimate total issuance this year will range between $15 billion and $20 billion.

The J.P. Morgan offering contains 36 loans secured by first liens on 96 commercial properties. About 71% of the properties are retail stores, and more than 30% are in California or Texas.

The top-rated AAA portion, a $416.12 million slice with a weighted life average of 4.53 years, was priced to yield 3.604%.
Norris said the price was about as expected. "It's neither very cheap nor very expensive," he said. "It's right in the middle."

The lowest-rated portion, a $14.3 million slice, was priced to yield 7.759%.
Below that was an unrated portion that wasn't marketed at all. This riskiest part of a deal is typically bought by hedge funds or retained by the originator of the bond.
A host of money managers, insurance companies and banks bought the deal, Norris said.

So; congratulations to JPMs Structured Products desk, but one question still remains unanswered; how, exactly, will JPM hedge potential losses from the lowest tranche which has remained sitting on JPM balance sheet.

While it is true the size of said tranche is not alarming, and even if the exposure is not hedged potential loses would not be damaging to the banks balance sheet given the gains bank has locked with marketing of this offering.

Therefore I ask this question in name of all potential future investors who might want to know who, where and based on which pricing method will sell the protection in form of a CDS on a CMBS structure which bears little resemblance to CMBS structures of the past.

I know of no derivatives desks who are willing to act as a counterparty in such a transaction; so JPMs Structured Products desk might have succumbed to hedging its exposure to non-investment grade tranche by buying in-house CDS from their derivatives trading brethren.

While the question is important [if for nothing else than for informative purposes] I do not feel the need to dissect it further. When and if the time comes for these tranches to hit the open market [probably being bought by a hedge fund with an uncontrollable risk appetite and/or hyperinflation trade] will I dig deeper into this issue.

As was noted before; the investment grade tranches are relatively safely structured and investing into an AAA one should not be a risky venture given the quality of the debt in it and the quality of the underlying collateral. Our assessment regarding the yield offered on AAA tranche still stands, and we find the yield too tight but justifiable.

MACRO PICTURE AND FUTURE CMBS MARKET DYNAMICS

Now let us discuss future CMBS prospects analyzing macro-economic indicators which represent the main economic vectors which directly influence CMBS market.

First we would like to note the rate of deterioration in the availability of consumer credit, which will affect lease sellers and lease buyers on the long term. With deteriorating revenues lease buyers will demand lower prices, and the amount of available space in the open market will make their request viable.

For insuring their own competitiveness in the marketplace lease sellers will need to further re-assess per-square-foot prices. A conservative estimate for the next 3-9 month period is 15%-25% lower per-square-foot prices on a national level.

This is the data issued by the FED on June 7th with regards to consumer credit:

This data is all but assuring for those who hold CRE debt.

And let us not forget that all CMBX traded tranches are legacy tranches; meaning they consist of CRE debt issued in 2006-2007. That debt was priced and issued based on future growth projections which, as we all know, did not come to fruition. So while lower tranches of non-investment grade nature crashed in 2008 following the macro-economic problems, investment grade tranches remained valued quite high.

And then something happened in 2009. All of the sudden CMBX indexes started to diverge from their standard correlation to debt markets and started trading in correlation to equities markets. While that [and some other financing measures ] assured alpha returns for those who bought into particular CMBX tranches, it has seriously skewed the price of said tranches. 

Just to offer you an illustrative example of the movements in CMBX indexes we offer the following table [please note that all lows were achieved in 2008-Q2-2009]

While it is true certain [if not all] AAA tranches have been oversold out of fear, and not based on any rational and analytical assessment of their true value, there is no reason to believe that the value of the loans and collateral underlying the highlighted BBB tranches has gone up 100%+ due to any improvement in either the macro-economic landscape or the future prospect of the debt issuers. Quite the opposite.

While the surge in the price of legacy BBB tranches is a viable and reasonable trade if one expects either strong future growth or hyperinflation; it has no sense whatsoever in the current deflationary environment. We expect the price of said tranches to fall significantly in the close future.

The problem in the AAA tranches is less severe due to the quality of the debt which participates in said tranches structure, we do see a slight fall back in the valuations of those tranches as well, but nowhere as severe as in the BBB ones.

We see nothing but grim prospect for CMBS market in the future, with only possible upside being a result of either liquidity misallocation [due to low borrowing costs for the investors] or high inflationary environment. But the possibility of those occurring is low, and our preferable view is deflation with later transition into stagflation.

These are the charts displaying the CRE price movement data [MIT TBI]:

FEW NOTES ON ABS AND ABX

Few days ago a favorable projection regarding sub-prime default rate was issued by RBS.

Bloomberg reports:

June 10 (Bloomberg) -- The proportion of U.S. homeowners turning delinquent on mortgages backing the securities that roiled the global financial system has tumbled in the past three months, even after accounting for a typical seasonal improvement, according to RBS Securities Inc.

Of borrowers with subprime loans in 2007-issued bonds who had never missed payments, an average of 2.6 percent fell behind each month, a drop from 3.7 percent in February, representing a 15 percent decline after seasonal adjustments, according to RBS analysts. “We believe that the last few months’ performance points to a fundamentally positive shift in borrower behavior,” Paul Jablansky, Desmond Macauley and Ying Wang, analysts at the Stamford, Connecticut-based unit of Royal Bank of Scotland Plc, wrote in a June 8 report. If sustained, the trend can “substantially increase the attractiveness” of related bonds, they said. Slowing delinquencies on risky mortgages have helped boost prices this year for related securities without government- backed guarantees, as the U.S. employment market shows signs of stabilizing and the transactions experience what Barclays Plc analysts term “credit burnout,” or a flushing of the weakest borrowers from the pools through defaults.

The trend may be the first step in a lessening of pressure from distressed-property sales in the U.S. housing market, which real-estate-data firm Radar Logic Inc. said in a report today is likely to experience a “second dip” in prices to new lows after they stabilized last year following record declines.

Home Seizures

The monthly rate of new delinquencies among all loans in non-agency mortgage bonds fell to 1.2 percent as of May reports from trustees, covering payments due in April, according to Austin, Texas-based Amherst Securities Group LP. That’s the low since 2007, down from more than 2.5 percent early last year.

On an absolute basis, new delinquencies also declined in early 2009, before rising later last year, reflecting the typical seasonal pattern partly related to income-tax refunds and winter holiday spending. Lenders seized a record 93,777 homes in May, up 44 percent from a year earlier, after the pace slowed amid government- encouraged efforts to rework debt, new state foreclosure rules and a flood of defaults hitting courts and loan-servicing departments, Irvine, California-based data company RealtyTrac Inc. said today. “There are still almost 5 million loans more than 90 days past due,” New York-based Radar Logic said in an e-mailed note. “As these mortgages move through the foreclosure process -- slowly, for now, but perhaps more rapidly in the near future -- the inventory of bank-owned homes is going to increase, barring a significant increase in the rate at which banks liquidate” seized homes.

Swaps Rise

More than 27.4 percent of mortgages underlying the $1.5 trillion of non-agency securities were at least 60 days late, in foreclosure or already turned into seized property as of April bond reports, up from 27.2 percent in January and 22.5 percent a year earlier, according to data compiled by Bloomberg.

The level peaked at 27.9 percent in February. Another 3.14 percent of loans were 30 days late as of the April bond reports, a two-year low and down from a record 4.3 percent in December 2008. Among just subprime mortgages, a total of 43.3 percent were delinquent or defaulted, the data show. TCW Group Inc., which oversees about $115 billion, is among investors that think non-agency mortgage bonds are “extremely cheap on a relative basis” because of the improving borrower performance, Bryan Whalen, co-head of the Los Angeles-based asset manager’s mortgage- and asset-backed bond group, said. He’s buying securities where “bad borrowers have been leaving the pools at a quicker rate than good borrowers can refi.”

Looming Defaults

A Markit ABX index of credit-default swaps tied to 20 subprime-loan bonds rated AAA when created in the first half of 2007 has climbed 16.9 percent this year to 40.25 yesterday, according to London-based administrator Markit Group Ltd. Higher ABX index levels generally indicate less pessimism about the bonds’ values. The ABX.HE.AAA.07-2 index, which trades at levels similar to the prices of the underlying securities in cents on the dollar, rose to 46.75 on May 3, the highest since October 2008, after falling to as low as 23.1 in April 2009, from 100 in 2007. Almost a quarter of U.S. mortgage borrowers owed more than their homes were worth in the first quarter, a situation that may eventually prompt homeowners who haven’t been delinquent to default, according to data compiled by Seattle-based Zillow.com.

Jumbo Loans

About 23 percent of Americans believe defaulting on a so- called underwater mortgage is justifiable, according to the results of a survey by Silver Spring, Maryland-based National Foundation for Credit Counseling released June 8. Subprime mortgages were given to borrowers with poor credit or high debt. Data on prime-jumbo mortgages in non-agency securities haven’t suggested the same improvement as seen with subprime debt, according to analysts including those at RBS and Credit Suisse Group. For instance, the amount of loans 30-to-60 days late among adjustable-rate jumbo mortgages in bonds created in the second half of 2006 climbed to 2.5 percent in May, from 2.2 percent the previous month, according to a Credit Suisse report last month. Jumbo mortgages are larger than government-supported Fannie Mae and Freddie Mac can finance, currently from $417,000 to $729,750 in high-cost areas.

While RBS optimism is always welcomed we can think of at least 100 other reasons why it is also misplaced and maybe even bordering with self-delusion.

But not to drag this article into unnecessary analysis; it is enough to say the amount of loans that are delinquent, but the properties underlying the loans are not foreclosed on, is now on the steady uprise and banks will either have to pile their money indefinitely to the FED and recoup the loses trough collecting interest rates from the FED on their money or face the loses, dilute the housing market and enter into a death spiral. And there is that deflation again which will only make things worse.

Trades which could be conducted based on this data are self-deducible and there is no need to list them here, but I will be more than glad to discuss them in the comments under this article.

Good luck ladies and gentleman.

Comments

[ZeroPower]

Its been by said by others, but yes great article CB.

Re this:

I know of no derivatives desks who are willing to act as a counterparty in such a transaction; so JPMs Structured Products desk might have succumbed to hedging its exposure to non-investment grade tranche by buying in-house CDS from their derivatives trading brethren.

What about DB? They were (well JPM too) one of the only few willing take the losing side of the CDS deals on subprime CDOs. Surely they would be very selective in telling the market what they were partaking in now, but im assuming JPM isnt the only one taking the long side of these transactions.

Also, the similarities between 06 and 07 right before the subprime shit started failing was how, instead of failing, the premium to insure the shit was actually falling in price because people weren't defaulting yet, and thus if you were on the short side of the MBS market, you were losing hard and would simply close out your position cause you didnt want to keep paying the spread.

Indeed, this might seem like a sound investment now (you trust the ratings correct)... but then again let's see what happens when the Fed increases rates; when banks take a hit on their ratings; or any other macro effect which influences these securities.

[Cheeky Bastard]

Yes, but the problem is with pricing. They cant use the same methodology to price [that is if they dont want to either over-price the hedges or expose themselves to heavy loses due to lower prices] CDS on these new instruments since the new instruments are only named the same as the old one, and have the same structuralization principle as the old one, but when it comes to CE, DSCR, LTV, types of CE, loss distribution etc etc, they are a practically unknown [hence the relatively high spread on the most recent AAA tranche in JPMCC 2010-C1].

Basically the occurrences of 2007 and 2008 and the severe distortion in the variables used in pricing formulas are now a serious problem when it comes to pricing new instruments [such as ABS, CMBS, CDO offerings you see now]. That is their problem, not the risk involved in the underlying security.

For more; read any of the Hull-White papers or any other paper [I recommend Turnbull and and papers which deal with Lemon Costs leitmotivs]  which deals in pricing CDS contracts. Basically Gaussian copula is not longer in use, and Monte Carlo has also showed to be inneficient, so basically the quants are in the process of structuring a new industry standard when it comes to pricing formulas for CDS for these new instruments.

Example. A CDO of 50 equally weighted components [and rated AAA by all 3 rating agencies] had a default probability of only 0.000063% and in 2008 98% of the participating components were in default. Guess what they used; Gaussian copula. Tried to switch to Monte Carlo just to get raped again in early 09. Then all new issues of CMBS, CDO, ABS etc etc effectivly stopped not because there was a lack of demand [there was but thats not the main reason] but because there was no safe pricing method for either for CDS contracts. All CDS contracts traded/underwritten/unwinded are derived from securities issued before 2009.

DB and JPM are notorious in taking the other side of risky trades, but they usually hedge themselves either by buying a synthetic equivalent or CDS pair trading. This is an impossibility when it comes to anything related to these new instruments.

I hope this helped with some of your dilemmas, and if anything was unclear or rant-like, you have to apologize me, since I havent slept in 2 days and things are a bit hazy right now.

I will come back to this comment in the morning and answer [or try to] any and all questions you might have.

[ZeroPower]

Very insightful, especially the more in depth info regarding pricing techniques. I was forwarded a working paper re how people are just trying to work out something new, exactly as you mentioned for correctly pricing or re-pricing CDS. Basically copula based Monte Carlo integration. The bulk of the stuff was over my head to read and understand the quants inside the paper, but i guess goes to show the problem hasn't been resolved yet and we need the math PHds to work it out, asap. Also didn't realize CDS pricing stopped for a time simply because of that fact, that there was no 'sane' model in place to correctly account for all variables; great insight.

Then again on that same note, people still disagree with continuous time finance (mostly scholars though, haven't heard of anyone in the field dissing it unless it goes against their P&L that is..) re pricing options, I wonder where that will progress (if anywhere) in the future. People like Nassim Taleb hate anything to do with the BSM model though im not aware of anything else he proposes in its place! (Good read: Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula)

[Akrunner907]

cheeky,

Have you cross-referenced the rental rates for CMRE and what that is doing to valuations?  I haven't looked into this, but since you are looking at the MBS side of things, I thought maybe they had the accompanying analysis of the rental rates.  Thanks for the article.

[Cheeky Bastard]

I haven't found anything on that, but I know one guy who is currently in the process of developing such model and crunching the most recently published data [ he is averaging the data from the back with independent data]. 

I'm in touch with him, but he only just began building his model. Regarding this particular offering they have offered an equity cushion big enough to offset any potential fall in the values of the properties, and CE techniques also contribute to that.

Now it is only normal to assume that if per-square-foot renting prce is down then value of the properties is down. Its all about the cash flow [and nothing else]; so naturally; [A--->B]--->C. 

A= falling rental prices

B= cash flow deterioration

C= value of the properties

As for the liquidity in the market; I think supply and demand curves, cash flow metrics and 1000 other things dictate the prices are falling and will continue to do so for the foreseeable future.

Example:

And as long as you see this; everything else is deducible.

[onlooker]

Best article of the week. Nicely written.

[ColonelCooper]

Thanks Cheeky.

[Rick64]

Way too many unknowns to be investing in this. Do you really have confidence in ratings? Too many hurdles for this market to jump before they become attractive.

[Cheeky Bastard]

With this offering or the past ones ?

I have with this one, since I read the prospectus and evaluated the structure myself, but only with the AAA tranche; not with the rest. But I still wouldn't buy the offering since there is 0 liquidity for these instruments [due to the novelty of the way they are structured and rated and the fact that your average market participant will not be able to tell the difference between JPM and RBS [and those offerings which will be marketed this year] and hedging instruments [unless you are the primary buyer here] are non-existent. You are left with the exposure and the risk associated, but you can not hedge since there are no hedging instrument available. Basically the yield is acceptable, LTV lets say is also acceptable, DSCR more than enough to assure me that there will be no problems with debt service and the quality of debt issuers is favorable. That said; I do not like the participation percentage of retail debt, increase in retail CMBS delinquencies and future environment in CRE. Credit enhancement is also strong for the AAA tranche. I mean I'm not the one who needs to sell and market these structures, and I am pessimistic in regards to CMBS products since the beginning, so that might skew my view a bit.

In short; I trust the ratings assigned, but I would not invest.

[Rick64]

This is my view without seeing the prospectus. 

One of my main concerns would be that this is made up of retail store loans, and the retail stores are reliant on consumers. When there are no jobs being created the consumers are not spending and this has been escalating over the past few months or more. I don't believe the statistics,  I believe what I see. I think the retail stores are on shaky ground and would be likely to renogotiate their terms or default. I wouldn't want to be betting on their future. DSCR doesn't mean a lot if the market turns for the worse, and no liquidity on top of that. I know this probably looks good on paper, but I have many of the same reservations you have stated.

I know of no derivatives desks who are willing to act as a counterparty in such a transaction.

 Isn't this kind of a no confidence vote by the derivatives desks? Very bad sign in my opinion.

This is just my common sense viewpoint and will take any criticism as constructive.

 Hey how about that English goalkeeper? I couldn't believe it, kinda feel bad for him.

[Cheeky Bastard]

It isn't that the DD are reluctant to sell you protection due to their models showing them flaws in this structure, but because there is no viable pricing methodology; basically they dont know how to price the hedging instruments. And also, fears of liquidity disappearance if the market caves again. AND they cant hedge themselves for obvious reasons. 

[Rick64]

 Are these the same people that can make a model for anything and create bullshit out of thin air? Either they aren't as confident as they used to be or they are reluctant because they might have to pay out.

[Mark McGoldrick]

I read last summer that Dream Hotel in NY was 90 days late on payments, but I haven't been able to find any information since then.  

Does anyone know where I can find if they went into foreclosure, or how this was resolved?  Any links that I'm not familiar with? I believe their lien was with Credit Suisse. 

[Cheeky Bastard]

Check either Moodys or Fitch for the CMBS which held that loan [it was surely a part of some CMBS]. If you know when the loan originated your inquiry should be that much easier.

[I need more asshats]

30 year becomes a 40 year. You can miss as many payments as you want for the next 5 years. They'll take half of the interest now with a delinquent principle balloon and interest plus 2 points tacked onto the end of the 40 yrs, if you allow them to audit your books during your requested grace period.

The Harry Potter School of Accounting.

[RockyRacoon]

Fabulous report, thank you Mr. Bastard.  Putting numbers to the ambiance of malaise is helpful.  At least now I know that my instinct can be trusted.

[torabora]

At this rate...in 5 years over 100% of the loans are defaulted. Unprecedented! The Age of Incompetance, indeed.

[QQQBall]

My view is that CRE transaction volume in Southern California has been pathetic for the past year.  In the past couple months, I have seen asking prices drop well below sales prices of deals that closed YE 2009. One thing supporting the market is low rates - MFD loan rates under 6%, but LTVs are also low, so prices will need to adjust downward to float yields. Apt rents may have bottomed in some markets at YE-2009 and early 2010 and seeing "some" firming of asking rents.  Seeing many more 3-generation households and lots of working age men at home during the day... when I talk to the guys, many have been out of work for a long time and seem discouraged. In the industrial sector, seeing shorter term leases with rolling options for tenants. Locally, lots of in-line retail suites have been sitting vacant for quite awhile. Absent "nail" and "beauty salons" and perhaps fastfood restaurants, businesses seem to be stressed. A real question is: how many Subway Sandwich" shops selling $5 Footlongs can a neighborhood support and how many $5 pizzas does a Dominos or Pizza Slut need to sell to BE?  If Fresh & Sleazy wasn't taking 1/2 of empty "anchor" boxes in formerly supermarket-drugstore-anchored centers, it would be even worse. It is telling that in many instances it appears that the "dark half" of the box that Fresh & Sleazy occupies has been sitting vacant for a long time.  I do NOT see any traction in the CRE market here, but I work the smaller end of the scale.  I do have a bank client that basically stopped making loans near the top and they are doing selective lending now, but they are more focused on buying discounted CRE notes.

The rumor for a while has been that a major lender has been "carrying" numerous large properties in the Inland Empire and the borrowers are basically managing the properties for the bank.  

[Gromit]

Well yes. More than a rumor, it's the new normal for over-leveraged crap.

And it can continue so long as Net Operating Income (ex debt service and taxes) is positive, they just remit whatever the net is to the lender, but if vacancy rises above 50%, even that can become problematic.

It's fundamentally unhealthy for people and real estate, as no-one is incented to properly maintain, or to spend money to lure good tenants. Leases become gross leases, for lower rents and for shorter terms, and the better tenants leave for greener pastures.

[Thoreau]

The weekly legal section in my area is still growing; you can always count on the Thursday edition being one fat bastard. Lot's more CRE notices, including back taxes. BOA is getting killed:) Medical, Grocery, Fast-food & nail salons are doing great, lol. 

[Ruth]

'Keeping Up with The Babyboomers' economy or whatever they're called now, we are going to need shelters for this segment and for the homeless, can't they make these highrises into something worthwhiled?  Govt financing for everybody, booyah! 

[Dark Space]

"how, exactly, will JPM hedge potential losses from the lowest tranche which has remained sitting on JPM balance sheet."

I don't have the Termsheet in front of me at the moment, but seems like Blackrock bought that piece.

I agree mostly with your comments. Things just haven't been "grim" hardly at all in CRE compared to what most expected to happen to-date. I don't think it gets much worse over the summer either - at least in terms of investors losing dollars. There is so much money chasing yield in CRE - we need to burn through all those funds before the real pain can be felt. Look for massive auctions this summer, initially well-bid by foolhardy investors bumping up against the end of their investment periods, followed by weakness once the school year starts and vacations are over.

[Cheeky Bastard]

Follow up:

It just occurred to me we might be talking about different things here when we talk about "yield chasing for CRE investors".

I think the better phrase would be "seeking alpha". While buying into individual properties, or property portfolio might be a good investment if you have excess liquidity and are ready to wait either until Bernanke inflates the dollar supply [which begs the question; with private borrowing touching an absolute multi-year low and the only thing from preventing the DXY to surge to 200 is government borrowing; what will happen first; inflation or sovereign default] or until the economy rebounds [10 years or so for the properties to regain their 2008 valuations with current monetary policy].

What I'm talking about here is the debt service which is the basis of the TRADING INSTRUMENTS I write about in this article. This was mainly a market analysis for CMBX traded tranches [which are all but representative of the non-local valuations due to the way they are structured] and CRE market only served as an argumentation tool.

While I do believe there are investors who are seeking maximum returns by buying property portfolios, that is not the issue here. I know many like macro-economic analysis and "real world" references, but that was not the point of this article.

I put CMBX really high in "best markets to trade" chart due to an incredibly generous risk/reward if you trade them properly and know when to unwind.

But since the lower tranches trade at valuations 80%+ from their peek the protection for them is really expensive right now and does not provide reasonable returns if the market crash. If you are buying a CDS on, say, BBB- tranche you are buying into the spread and effectively the cost of your "short" offsets any possible gain by the falling price of the tranche you short. Also, it is unreasonable to believe that the price will fall to 0 [index components are equally wighted and thus the  probability of default distribution plays against you if you are short BBB- tranche].

AAA tranches are still close to their top, so if your conviction is great you could short them and the CDS would not really be that expensive as in aforementioned BBB- tranches.

Basically lower tranches rocketed in price [only one of many reasons] due to the short squeeze in derivatives [buying a CDS on 10B net notional on BBB- when it was at its low would have cost you north of 9 billions], and since CMBX does not offer index options [your standard put/call that SovX [some sub-indexes]offers] you see the only way those indexes could have gone is up. And not to mention the lack of liquidity in BBB- CDS contracts when those were trading 95% below their issuance price.

This is the computation of prices when you buy into spread. These are for ABX.HE but the same is true for CMBX.

My goal is not to spread doom and gloom here, but be reasonably in-partial to any view, but all the metrics point me towards one conclusion; the one I stated in the article.

I find the mark-to-model, refusal to foreclose and distorting price discovery to be main reasons why we have not seen the predicted carnage in CRE. Will we see it; probably not until the banks start to price it mark to market [0 liquidity there, hence they either store in in SPEs or directly on the balance sheets, but with prices calculated with mark-to-model].

You can see the supply-demand curve if your scroll further down the comment section; and it simply does not say what the banks are saying. So either MIT lies or the Banks do. I would say the banks. Well, not that they lie, but that the methods they use when it comes to everything CRE is at best un-representative.

[Cheeky Bastard]

If you do get a hold of Term Sheet regarding this offering, would you be able to send it to me, so I can either update or correct anything that was wrongly stated in the article regarding JPMCC 2010-C1.

Also, funny note: GGP is thinking of entering into CMBS market once again to refinance the mortgages. Funny thing.

You might be right about this summer; but only if the offerings are above par with regards to average DSCR, LTV and yield. Also CE will play a big role.