Posted by: BayAreaComRE | December 21, 2009

Capital Markets Update

CRE delinquency rates continue to climb, with Trepp reporting that overall delinquency rates on CMBS (Commercial Mortgage Backed Securities) reached 5.52% in November, led by hotels & lodging at 13.47%. Recent reports by Deutsche Bank and other institutions suggest that office property delinquencies will continue to climb through 2010 even as the worst of the problems in retail and lodging begin to abate.

The Fed and FDIC continue to promote policies that favor loan restructuring rather than the sale of loan or REO (real estate owned / bank owned) assets. A recent FDIC ruling states that restructured loans should not be “adversely classified”, even if the current collateral value is below the loan balance, if the restructured loan is “prudently underwritten”. The fact that a loan that is being paid on a current basis will be considered a strong indicator that the loan should not be classified.

For example, a bankruptcy court just approved General Growth Properties, a large retail REIT, plan of reorganization for $10.25B of the company’s properties. The reorganization included extending existing loans for an average term of nearly 6-1/2 years at the current non-default rate (average coupon of 5.33%). The reorganization plans for an additional $2B of properties are expected to be approved shortly.

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  1. […] Previous posts can be found here: March 10, Jan 26th, & December 21st. […]


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