CRED Buyer

Commercial Real Estate Not Immune to Economic Woes

I purchase commercial real estate loans in the secondary market. Those transactions done in late 2006 and 2007 before the crash, are deepely underwater. one exmaple:

1. Very highend Hotel in California with $90MM in debt and only a $4.5 NOI, and is arguably stabilized.

In todays underwritting this entire hotle is worth probably only $60MM. not the $112 million the bank thinks. They are trying to sell the B piece at price that still values teh hotel at $95. This hotel is owned by a mjor REIT - and they have several of these loans, are they going to put up the additional capital by my estimate $45MM that will be needed to refinance these loans when they come due in 3 years. I am seeing this all over the place, and teh smart guys on Wall Street still seem to be smoking crack.

When it is time to refinance this debt assuming there are some lenders out there, they will want 1.2 - 1.4 DCR inplace, real cap rates, and a 60 - 75% LTV if you apply this metric to a lot of these deals out there - a lot of 06 and 07 loans are under water.