Today's CMBX Credit Problem

There is a credit problem in CMBX which has led to a significant widening of spreads in that sector.Spreads are wider by 6 basis points to 8 basis points in AAA space and about 35 basis points wider in AA space.It gets very ugly in A and BBB space as that stuff is out 75 basis points.

The loan in question is a $225 million dollar loan on which the borrower walked away with a $44.6 million cash take out.

The building in question is rent stabilized and the premise of the loan was that a very large portion of tenants would shift to market rates. That has not happened and the loan is on the verge of default.

Here is a link to a WSJ article about the story.

Comments

[whidbey:]

Suppose there was some fraud? The creditor must have been looking for a loan write-off or something worse, part of the walk-away money. Looks like a setup by the mop except the take is a little low. The conversions are almost never feasible even if the the borrower really wants to do the work of getting tenants to agree to consider paying more rent. Why would they agree? Must be FWI ,(financing while insane.) And it rippled across the credit markets. Why?

2008 Aug 15 03:15 PM