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Moody's Reports January Increase In CMBS Delinquency Rate To 5.42% Is Largest On Record
The January Moody's CMBS delinquency rate hit a record at 5.42%, after posting the largest one month increase (50 bps) in history. While the deplorable state of CMBS is not a secret to anyone following RealPoint's monthly delinquency data, getting confirmation from a procyclical firm such as Moody's should be enough to wake up some of the optimists that even thought "everyone is talking about the commercial real estate" collapse, nothing is being done to actually fix the underlying causes. Anyone recall "contained" Dubai and its freshly record CDS spreads?
The breakdown of the various delinquency rates by property types and vintages is presented below.
Anyone thinking that the rate of deterioration in CMBS is moderating, please take a look at the chart below which shows the magnitude of the monthly change in the delinquency rate.
The delinquency by vintage demonstrates a very bimodal distribution, where while the weakness in the 2006-2008 vintages is to be expected, the dramatic spike in 1998-2000, and particularly 1999, is a novel phenomenon.
The reason for this is described by Moody's:
The 1999 vintage had the worst performance in 2009, partly due to ten-year loans from that cohort coming due and attempting to refinance in an unfavorable economic environment. The delinquency rate for the 1999 vintage was 3.59% a year ago and currently stands at 22.52%. We expect to see a significant increase in the delinquency rate of the 2000 vintage in 2010, as the ten year loans mature in an improving, but still credit constrained environment.
Unlike recent vintages, which are delinquent mostly in the 60+ day past due category, the anniversary vintages (1998,1999) are delinquent mostly due to maturity default.
Earlier vintages are experiencing a mix of all three types of delinquency. As discussed above, the 1999 and 2000 vintages have a significant share of maturity defaults from ten-year loans. Likewise, the 2004 and 2005 vintages have a large proportion of maturity defaults due to five-year loans.
The capital to pay down, refi maturities is just not there. This has a very negative implication on the CRE market, where REITs are trading on the assumption that capital (refi or otherwise) for any and all CRE ventures is again freely flowing.
Below is a summary of delinquency rates by state:
And here is a brief overview of recent remittances and the top 10 newly delinquent loans. We will present an extended remittance list shortly.
Full Moody's report.
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nothing that a new multi-trillion TALF can't handle !
they'll all exchange those non-performing loans for UST and live happily ever after til USD devalues enough that the buildings can get sold at a profit .
The TALF is a bust, having securitized a very small fraction of available mortgages and it expires on March 13st.
and the pieces of shit at the Fed will just print, buy these securities, buy more malls, buy more offices bldgs., buy more treasuries, buy more common equity in u.s. banks, buy anything that needs buying.
they are going to drag this out forever and when the minsky moment hits, this is what you will hear: "Well, we never saw it coming".
We're well past the Minsky moment. The damage is done. Credit money machine is poof, gone. There's no longer any credible way of servicing rents without hyperinflating fiat currency. So its either hyperinflation, or a more or less permanent deflationary depression.
What's now coming into view through the fog is a realization that - no matter the path of the financial adjustment - most financial assets developed by Anglo bankers (and sold to people at the behest of government, tax and bill collectors, btw) over the last 20 years are essentially worthless.
Jeez, 5.5% deliquiency is bad, but not a collapse. 20% would be closer to collapse.
~Summer 2012
October 2010 global market and currency collapse is what I keep seeing. Scary ignore it through summer then BAM.
Two questions.
1.What do you base that on?
2. Did you put any money on the table?
my assumptions: 1. nothing, 2. no.
Oh man you can come at it from so many angles.
Astrological. We hit 3rd round of uranus opposition saturn. The saturn crystalizes to maintain authority while the uranus brings in individuation forces out the wazoo because people are just sick of our authority, leader model that has been abused forever.
Economically.You got every government, state and municipality with budgets of shit. The nervousness that hits now will make people tighten even more. The budgets run the bills get paid and then BAM banks dry, rainy day funds gone, reserves eaten. Shit hits the fan. Throw in corporations getting predatory bringing abusive behavior to the forefont, wait till you have states and cities crawling with cops handing out tickets like crazy just to try to slow down the coffer bleed. There's really a million ways for the ugly to manifest.
Scientifically. We don't slowly evolve. We do it quickly, abruptly and without much warning. Like a mind changing, a dream dying.
Because I can feel it.
So if you're right, you should take out a ginormous loan and play the market accordingly.
There's something about this your not quite getting.
Punctuated equilibrium? Keep in mind that S.J. Gould was a leftist.
There will be a currency collapse, but for the opposite reason people are expecting.
Its not "hyperinflation" - which can't happen when people don't have any money. At first, there will be massive and unrelenting strengthening of the USD / UST complex (as fiat disappears a little), and then, a sudden collapse when it becomes clear that the rents can't be serviced (when fiat disappears a lot).
All the bonds and rents collapse one way or another. Doesn't matter if they take the numerator to zero or the denominator to infinity - same difference. Same result.
Well 20% would be a catastrophe, remember all of this is being lent out at reserve ratio of what 7:1? It varies by bank/institution because of size, and duration in the banking sector newer inst. are only allowed to use 5:1 per million dollars. 5% delinquency rates are problematic because of the direct hit to the bottom line and the impact it has on other the questionable quality of other assets.
Where are you getting 7:1 ?
I do not think there's any consideration for structural differences of investments.
There are some banks, some hedgies and some longer-term investors/reits. 1st, and 2nd are irellevant becaues their losses are guaranteed as part of 20 or so FED liquidity programs. The last group raised a lot of capital and the larger players will hold on to losses for 5-6 years without a hickup, in 10 year timeframe they will make money, and in the process scouping up all the smaller players than didn't manage to raise capital.
Even in 3-5 year term, there's huge money to be made in reits.
I believe the CNBC coverage goes something like this.
"Moody's reports a bright spot in Commercial Real Estate. Delinquencies in 1998 vintage loans declined by 117bp. Not only that, well-over half the states had below average delinquncy rates. And we all know that real estate is a local phenomenon, so it appears we may have seen the worst of it. Looks like a good time to buy REITs."
The following report was brought to you by GE. "General Electric. Making mercury work for you one light bulb at time"
Doesn't the EPA consider mercury a poison?
I hope so.
Just have Steve LIESman report on it. Numbers look good, fears of CRE troubles were unwarranted. Nothing to see here.
That's just faaantastic!
rising in power law spells forced deleveraging
The fed is and will keep buying cmbs until the cows come home. they already own a big rapidly depreciating mall here. They will buy a turd sandwich if the right entity :cough: is selling.
Deep Shah.
Wow! 24% is rediculous! We really are screwed! oh well... when all else fails print print print!
"half the states had below average delinquency rates"
I'm going to use that in the future. It's not too bad, because half the (problem) had (below/above) average rates. Brilliant!
.....yeah, like being the cleanest girls in a nasty old bordello.
No surprise AZ and NV lead the pack. Commercial projects there have a long history of jumping in front of planned developments. They want the cheap land before it ain't cheap no mo. Now it be gettin' cheaper every day .
It's eerie to see vacant strip malls in the desert......like modern day Tombstones with tumbleweeds in the parking lots.
Cute, but this is only true of the median, not the mean (average). Indeed, 3/4 of home prices can be below average.
Think about 20 homes with one being valued at 10 million and the others being valued at 100,000. In this particular case the value of 95% of the homes is below average.
Meanwhile, IYR is turning back up.
Check out the short interest..
Wow....
I'm short this turd as well as URE. The slippage makes up for the squeeze BS. It's only a matter of time and these are both zeros. That's not a hunch, it's a statistical fact over time given the guaranteed slippage.
There's nothing that "can" be done.
The shit is uneconomical and losing money. That's it. And there's no amount of funny money that can make it otherwise.
This is champagne supernova coming on the entire build/grow/expand model.
If they do not FF&C CMBS, they will vaporize most of the banks and every CREIT. I don't think they'll allow that to happen because that's 08 all over again.
Nice hockey stick, eh! Forget the end of the world (cause ain't nothing were doing now that is any better than rubber neckers staring at a freeway accident) and enjoy some real hockey in the olympics. Go long Cannucks and short Americans.
Nuther data point: I ride my bike to work (30 miles one way) through Intel and Google territory in Silicon Valley and just today I noticed a lot of commercial vacancies. I never noticed them before, and today they were everywhere. Huge complexes, totally vacant. So suppose my "window" of actually noticing is maybe a month or two ... might mean these things are suddenly popping up all over the place.
I was like "WTF is this all the sudden". Massive implosion in the works? Beats me.
cougar
A general rule of thumb for Cali CRE is.......whether full or empty.....it's for sale. SoCal has a bunch of virgin multi-story properties never habitated by humans. The mice are the tenants.
Yo Coug,
I ride through the Portland, OR silicon forest and same story...brother-in-law is a commercial realtor and business is horrific for formerly high fliers. Most CR'tors have already eaten through their savings, are finishing off their lines of credit for dessert and now starting with severe indigestion.
Yeah. My feeling today was totally like that; a bunch of guys are suddenly giving up, and all at once. Tapped out or something.
Maybe the strategy is to delay putting the signs up on the lot while they try to fill the complexes off the open market. May be a way to keep prices up and the other brokers guessing, I don't know. But when that angle is played out and they are just walking away, the signs then go up. As if a guy riding by on a bike is going to see it and call someone! Yeah sure, I'll be getting right back to you on that one.
"Capitulation" written all over it. Spooky is all I can call it.
cougar
We're starting to see new layoffs at HP-Silicon Valley.
Shave off a few percetage points worth of emps every quarter. The engineers see it but it's not enough to get publicity.
Required distributions on performance reviews so there is always a group to punish.
But (silver lining) there are plenty of openings in India.
We make fun of China for building office buildings and entire cities with zero occupancy, but what's the difference when our government buys our own ghost towns?
I just can't ever understand how humans can still believe in magic. Even when intuitively we know magic does not exist. Even when a masked man tells us all the devilish details of the fraudulent magic tricks (who later gets killed for breaking the magicians' code). Belief in magic is simply the act of a desperate mind clinging to the concept that our existence is completely within the confines of our control.
Magic doesn't exist and neither does a convenient and painless way out of this. When we're faced with a decision between food and god, the collection plate runs dry.
murieta calif, theres commercial intersection developments,brand new, that have not rented 1 space, in over 1 year since completion, and housing developments, with the models, boarded up. the big homebuilders, own a lot of depreciating, acreage around here
Soon they'll be getting tenants......karate training centers, furniture-for-rent stores, payday loan centers, etc.
Worst of all is the undeveloped acreage, as you describe. I have a formerly high rolling pal ( but still a pal ) who got stuck on a leveraged graded parcel in Lake Arrowhead he bought in '06. Beautiful site for custom homes. Now BK...ouch.
Sucks to be 51 and moving in with Mom.
Funny, I stopped at Lake Elsinore outlets on the way home from the MX track last night, place was pretty dead. Brand new retail centers all over the place, lots of vacancies.
Huge number of brand new empty buildings in Corona/Riverside.
Good to know somebody else tweaks on vacant CRE in SoCal , Robo.
It just pisses me off when we lose #1 status to AZ. I don't understand. Maybe if SoCal was its own State, we'd be in the game.
Robo, Rainman,
Over here in San Bernardino we have a bunch of new building as you head up Waterman or Palm Street from the 10 freeway. Built between 10 months and 1 year ago, and no one is home at any of them yet.
Central downtown San Bernardino is dying faster than the county can fix it up. Everything is either moving west to Ontario area, or heading into the "Donut Hole" in Redlands/Highland.
Things are getting very ugly here.
All of the above stories very scary.But reality.
2010 is going to be ugly....much worse than 08, I
fear
The next shoe to drop? China's Move to Curb Inflation: Good News for the Mainland, BAD NEWS for U.S., Strategist Says
Pardon me, but I've been drinking.
It's contained.
-:)
Parts of Florida have a lot of vacant CRE properties also. We probably are next in that problem after CA, NV, AZ. The craziest part is seeing the ones that were just finally finished this year after getting the financing a few years ago and how they are just sitting there empty.
-Big Yawn- 5.42% Is good.
Wake me up when we get the real 15% default rate.
Default's cure rates at 1%, and real unemployment at 18%.
15% is my number. Come on baby gimme the 15!
The only thing about this depression that bothers me is that Obama is making way too slow to get to the bottom.
Luv u Obi...
Surprizing to see that Rhode Island took the bronze.
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