CMBS Delinquencies Soaring

Delinquent CMBS rose to 3.04% at the end of July which represents a jump of 0.5% in one month according to Fitch Ratings.

Here is the company’s summary of the current situation and trend:

‘For the past several months, delinquencies have increased at a rate of over $2 billion per month; the 30-to-60 day rollover rate has consistently exceeded 50%, and resolutions from the index have been slow due to the lack of refinancings and dispositions,’ said Mary MacNeill, Managing Director of Fitch’s U.S. CMBS Group. ‘If current trends continue, delinquencies are likely to pass 5% by the end of 2009, though the likelihood of large recent vintage proforma loans depleting their debt service reserves by year-end could drive the percentage of delinquent loans past 6% by first-quarter 2010.’

Breaking down the delinquencies by product type, they show that $4.4 billion delinquent retail loans, $3.5 billion multi-family, $2.3 billion office, 2.2 billion hotel and $510 million commercial delinquencies. Within their product types, 5.03% of multi-family loans were delinquent and 4.3% of hotel loans, 3.5% of retail loans, 2.07% of industrial loans and1.54% of office loans were delinquent.

These numbers are beginning to look like those of residential real estate, aren’t they? This is going to be a significant drag on any recovery and as I’ve said before, a real disaster for smaller banks.

Comments

[CautiousInvestor]

I think there is around $1.3 trillion of CRE debt coming up for refinancing between now and 2013 which will put enormous pressure on bank balance sheets.

This is a major Fed talking point and they are obviously concerned about the potentially explosive combination of rising defults and paralysis in rolling over loans whose collateral has depreciated 35% to 40%.

There are simply too many malls, strip centers, apartment complexes and office buildings to accomodate consumers and businesses who are both cutting back.

2009 Aug 11 07:20 AM

[MarkitWacha]

With the improvements coming from online retailers, there's not as much room for profit to support retail space. Apartment complexes are still in demand, as people get tired of living with in-laws because of the recession.

If I were an officer in a bank that wasn't nationalized, there's no way that I would roll over a CRE loan in this environment if the loan was under water.

It will soon be time for the S&P to tank again, as all non-nationalized banks have losses.

Long: put options on Sept TLT

I'll buy into commodities when the S&P correction happens.

2009 Aug 11 09:28 AM

[conceptwizard]

Gerald Celente, the head of the Trends Research Institute, the major trend-forecasting agency in the world, wrote in May of 2009 of the “bailout bubble.” Celente’s forecasts are not to be taken lightly, as he accurately predicted the 1987 stock market crash, the fall of the Soviet Union, the 1998 Russian economic collapse, the 1997 East Asian economic crisis, the 2000 Dot-Com bubble burst, the 2001 recession, the start of a recession in 2007 and the housing market collapse of 2008, among other things.

On May 13, 2009, Celente released a Trend Alert, reporting that, “The biggest financial bubble in history is being inflated in plain sight,” and that, “This is the Mother of All Bubbles, and when it explodes it will signal the end to the boom/bust cycle that has characterized economic activity throughout the developed world.” Further, “This is much bigger than the Dot-com and Real Estate bubbles which hit speculators, investors and financiers the hardest. However destructive the effects of these busts on employment, savings and productivity, the Free Market Capitalist framework was left intact. But when the 'Bailout Bubble' explodes, the system goes with it.”
Celente further explained that, “Phantom dollars, printed out of thin air, backed by nothing ... and producing next to nothing ... defines the ‘Bailout Bubble.’ Just as with the other bubbles, so too will this one burst. But unlike Dot-com and Real Estate, when the "Bailout Bubble" pops, neither the President nor the Federal Reserve will have the fiscal fixes or monetary policies available to inflate another.” Celente elaborated, “Given the pattern of governments to parlay egregious failures into mega-failures, the classic trend they follow, when all else fails, is to take their nation to war,” and that, “While we cannot pinpoint precisely when the 'Bailout Bubble' will burst, we are certain it will. When it does, it should be understood that a major war could follow.”

2009 Aug 11 02:27 PM

[TeresaE]

Since the banks are forcing paying commercial customers into insolvency by yanking away loans and mortgages, just what do they think would happen?

We bought our building in '02. Put down 20% cash and financed the rest.

It came up for re-evaluation two years ago in August. Building had lost 40% of value, but bank decided a paying customer was better than an empty building.

In March they notified us that we were out of covenant (due to sales & balance sheet--so reduced value assets) and they called in both our mortgage and credit line.

The banks KNOWS that we will not be able to find financing for the mortgage, they KNOW the building-through no fault of our own is worthless, they don't care.

You ain't seen nothing yet if my struggling customers and vendors are any indication of reality.

Every commercial company forced into closure used to employ people and provide both income and tax revenue.

Wonder how much 100% of nothing is?

Cause that is what will be left once Washington and Wall Street are done with the rest of us.

2009 Aug 11 04:05 PM

[markfl]

Everyone talks about recovery, but few discuss what could happen in 2010-2011. A year of weak growth in 2010, then, in 2011 (with unemployment still at 8-9%), FOMC and Washington tighten money supply and decrease spending. The economy hits the second down leg in the "W." Can't happen? Sure it can. 1910-1914: Two lengthy recessions with one year, 1913, in between. Check out this graph of what was really the 1980s recession upload.wikimedia.org/w... .

On Aug 11 02:27 PM conceptwizard wrote:

> Gerald Celente, the head of the Trends Research Institute, the major
> trend-forecasting agency in the world, wrote in May of 2009 of the
> “bailout bubble.” Celente’s forecasts are not to be taken lightly,
> as he accurately predicted the 1987 stock market crash, the fall
> of the Soviet Union, the 1998 Russian economic collapse, the 1997
> East Asian economic crisis, the 2000 Dot-Com bubble burst, the 2001
> recession, the start of a recession in 2007 and the housing market
> collapse of 2008, among other things.
>
> On May 13, 2009, Celente released a Trend Alert, reporting that,
> “The biggest financial bubble in history is being inflated in plain
> sight,” and that, “This is the Mother of All Bubbles, and when it
> explodes it will signal the end to the boom/bust cycle that has characterized
> economic activity throughout the developed world.” Further, “This
> is much bigger than the Dot-com and Real Estate bubbles which hit
> speculators, investors and financiers the hardest. However destructive
> the effects of these busts on employment, savings and productivity,
> the Free Market Capitalist framework was left intact. But when the
> 'Bailout Bubble' explodes, the system goes with it.”
> Celente further explained that, “Phantom dollars, printed out of
> thin air, backed by nothing ... and producing next to nothing ...
> defines the ‘Bailout Bubble.’ Just as with the other bubbles, so
> too will this one burst. But unlike Dot-com and Real Estate, when
> the "Bailout Bubble" pops, neither the President nor the Federal
> Reserve will have the fiscal fixes or monetary policies available
> to inflate another.” Celente elaborated, “Given the pattern of governments
> to parlay egregious failures into mega-failures, the classic trend
> they follow, when all else fails, is to take their nation to war,”
> and that, “While we cannot pinpoint precisely when the 'Bailout Bubble'
> will burst, we are certain it will. When it does, it should be understood
> that a major war could follow.”

2009 Aug 11 04:09 PM

[TeresaE]

The one caveat that the often correct Mr. Celente is negating.

Our defense relies on foreign made products, and this is not changing at all.

So, apparently unlike WWII, manufacturing won't be here to fix the economy. I guess the war could potentially wipe out 50% of our citizens and just like after the plauge, the wealth that is left will be divided amongst fewer people.

Scared yet? We sure as hell should be.


On Aug 11 02:27 PM conceptwizard wrote:

> Gerald Celente, the head of the Trends Research Institute, the major
> trend-forecasting agency in the world, wrote in May of 2009 of the
> “bailout bubble.” Celente’s forecasts are not to be taken lightly,
> as he accurately predicted the 1987 stock market crash, the fall
> of the Soviet Union, the 1998 Russian economic collapse, the 1997
> East Asian economic crisis, the 2000 Dot-Com bubble burst, the 2001
> recession, the start of a recession in 2007 and the housing market
> collapse of 2008, among other things.
>
> On May 13, 2009, Celente released a Trend Alert, reporting that,
> “The biggest financial bubble in history is being inflated in plain
> sight,” and that, “This is the Mother of All Bubbles, and when it
> explodes it will signal the end to the boom/bust cycle that has characterized
> economic activity throughout the developed world.” Further, “This
> is much bigger than the Dot-com and Real Estate bubbles which hit
> speculators, investors and financiers the hardest. However destructive
> the effects of these busts on employment, savings and productivity,
> the Free Market Capitalist framework was left intact. But when the
> 'Bailout Bubble' explodes, the system goes with it.”
> Celente further explained that, “Phantom dollars, printed out of
> thin air, backed by nothing ... and producing next to nothing ...
> defines the ‘Bailout Bubble.’ Just as with the other bubbles, so
> too will this one burst. But unlike Dot-com and Real Estate, when
> the "Bailout Bubble" pops, neither the President nor the Federal
> Reserve will have the fiscal fixes or monetary policies available
> to inflate another.” Celente elaborated, “Given the pattern of governments
> to parlay egregious failures into mega-failures, the classic trend
> they follow, when all else fails, is to take their nation to war,”
> and that, “While we cannot pinpoint precisely when the 'Bailout Bubble'
> will burst, we are certain it will. When it does, it should be understood
> that a major war could follow.”

2009 Aug 11 05:24 PM

[Westcoaster]

Boy, you folks are negative. We are just trying to come out of the "Great Recession" and you are worried about a 3% default rate? Looks like the CMBS market was better underwritten than, let’s see, Investment Bankers (Lehman), insurance company's (AIG), home mortgages (Freddie, Fannie), sub-prime, community banks, regional banks, money centered banks, credit card debt, etc. All of you go short some other country like Cuba.
This article isn’t broken out right. Where is the data on new construction vs stabilized properties? Where is the data on what LTV’s these loans were at?
And yes an 80% LTV is risky, it can’t handle the current 90% vacancy, but a 50% LTV can, and it just keeps paying the bonds or the bankers. I see the future much different than you folks. Yes owners will have to pony up equity in some cases but the banks next year and the years to come are going to be falling over themselves to grab some of this old stabilized CMBS business. We are all collectively sitting on piles of cash waiting, hoping, yearning , seeking some sort of return.

2009 Aug 11 07:37 PM