CMBS Research Shows Rebound to Pre-Recession Levels

A new report from the CoStar Group examines the trends and latest information yielded from the April CMBS bondholder remittance reports to evaluate the state of CMBS loans, which now see to be rebounding to pre-recession levels. Data shows that net operating incomes on almost all yearly vintanges of CMBS loans are now near or above underwritten financial levels. An excerpt follows:

Based on the loans that have reported year-end 2012 financials, NOI growth was strong in 2012 rising 4.5% on average. For the 2010 and 2011 vintages about 30% of the loans reporting year-end 2012 financials are showing lower NOI than was underwritten. The 2012 vintage is showing a higher percentage, with around 40% of the loans having lower NOI compared to the underwritten amount.

While they plan to revisit the topic again in a few months once the majority of the loans have reported, based on the early look at NOI (net operating income) trends among loans that have reported year-end 2012 financials, Jan de Beur said NOI growth was strong in 2012, rising 4.5% on average.

"While preliminary, the 2012 NOI growth rate is noticeably higher than the 3% increase in NOI experienced in 2011 on average," said Marielle Jan de Beur, managing director and head of Structured Products Research CMBS and Real Estate Research for Wells Fargo Securities.

For more news and information visit Blumberg Capital Partners.

Savanna Finalizes 2 Rector St. Acquisition

Savanna, a real estate private equity firm run by Chris Schlank and Nick Bienstock, has acquired a controlling interest in 2 Rector Street. Savanna worked in partnership with Stellar Management to buy out Stellar's partners, including Lehman Brothers to secure a controlling interest in the property, according to a CoStar report. In 2010, Savanna became a part owner of the 464,000-square-foot, 26-story office building when it helped landlord Stellar Management restructure a loan. The building at the time couldn't make debt payments because it had lost its largest tenant, according to a Wall Street Journal article.

According to data from Real Capital Analytics, the first mortgage that Savanna bought in to was $100 million in CMBS, while the 2007 mezzanine loan was $10 million. "Our capital work will transform 2 Rector Street into a modern Lower Manhattan office tower located just steps from the World Trade Center development, complete with highly desirable office suites built to suit our tenants' needs," Andrew Fichte, a vice president at Savanna, said in a prepared statement.

A Jones Lang LaSalle team headed by Vice Chairman Mitchell Konsker, Senior Vice President Scott Cahaly and Vice President Brian Reiver will handle leasing at the building. Savanna is planning an an extensive capital improvement program, spending millions of dollars to upgrade the building's lobby, elevators, restore its exterior and modernize a number of building systems.

For more news and information visit Blumberg Capital Partners.

U.S. CMBS Delinquency Rate Rise Again, REOs Reach $11B

New data from Fitch Ratings shows that the volume of real estate-owned (REO) assets for lenders reached $11 billion in April, a new market record, representing one third of all outstanding delinquencies according to Fitch Ratings. The current and prior month delinquency rates for each of the major property types are:

• Multifamily: 11.64% (12.61% in March)
• Hotel: 10.20% (10.35% in March)
• Industrial: 9.34% (10.91% in March)
• Office: 8.36% (7.99% in March)
• Retail: 7.39% (7.23% in March)

A closer look reveals stark differences in REO trends by state, according to a Costar Group report. In states where non-judicial (power-of-sale) foreclosure is allowed, the inventory of REO assets increased by 64% since the start of last year. Conversely, the inventory in judicial-only states (where the foreclosure process can be notably slower) jumped by 111%. For the current inventory of REO assets, it took an average 179 days to foreclose on properties in power-of-sale states, versus 323 days in judicial-only states. This suggests that the current REO inventory from judicial-only states represents older stock that is finally making its way through the system.

For more news and information visit Blumberg Capital Partners.

Wells Fargo Buying $3.3B in Loans

Irish Bank Resolution Corporation, formerly Anglo Irish Bank, has agreed to sell a portfolio of 61 performing loans worth $3.3 billion to Wells Fargo & Co. according to an Orlando Business Journal article. Wells Fargo said it closed on 25 of the loans, with a face value of $1.5 billion, last week and expects the balance of the loans to close in the fourth quarter.

Wells Fargo is Central Florida's third-largest bank, with 59 branches and $5.9 billion in deposits. Wells Fargo and Royal Bank of Scotland Group Plc also sold about $1 billion of bonds backed by commercial mortgages after relative yields on the debt fell reported Businessweek at the beginning of the month.

For more news and information visit Blumberg Capital Partners.

Moody's CPPI Up 2.4% in August

The latest Moody's/REAL Commercial Property Price Indices report for October 2011 was released this week recording a 2.4% increase in August for the National — All Property Type Aggregate Index (CPPI), bringing it to 15.3% above the post-peak low recorded in April 2011. An excerpt from the report:

The share of distressed transactions included within this month's CPPI was 21.7%, down 5.9% from last month and the lowest level since January 2010. Prices for distressed transactions were down by 3.5% from the last month and are 6.9% above their post peak low set in August 2010. The reduced share of distressed transactions helped drive this month's overall price increase.

Looking forward, we do not envision significant price increases over the next year. While distressed transactions should be at or near their high water mark for this cycle, there is less CMBS loan origination to help support acquisition pricing, especially beyond the portfolio lender sweet spot of trophy properties and top tier markets.

"There's more caution," Robert Bach, chief economist for Grubb & Ellis Co., a Santa Ana, California-based brokerage, said in a telephone interview with Businessweek before the Moody's report was released. "Investors in general are a little more cautious, and that includes investors in commercial real estate."

For more news and information visit Blumberg Capital Partners.

Is the CMBS Recovery Faltering?

The Wall Street Journal thinks so. A new article from Al Yoon at the Journal observed that the recovery in the commercial mortage-backed securities market has stalled out even though before the summer all indicators showed a favorable return on the horizon post-recession. An excerpt from the article:

Investment banks have sold four issues of the bonds, valued at about $6 billion, since the market hit the brakes this past summer because of investor skittishness about the souring economy and an 11th-hour decision by rating firm Standard & Poor's to pull its rating from a deal.

But to sell these issues banks had to structure them differently, providing buyers of the safest bonds more protection than usual. Now, weak investor demand is hampering the sale of the riskier parts of the new issues.

For example, J.P. Morgan Chase & Co. has been trying to sell a quarter of its $1 billion issue for two weeks as investors have been balking at yields on lower-rated classes, according to two investors familiar with the deal. Sales have been slow even as J.P. Morgan raised the risk premiums—or the amount of yield above their interest-rate benchmark—at least twice for these riskier bonds, the investors said.

Meantime, the bank easily sold the senior, safest bonds within days of the deal's announcement. A spokesman for the bank declined to comment. Investors say J.P. Morgan has sold most of the high-risk bonds but took much longer than usual.

The difficulty means that banks may have to go even further to make commercial mortgage securities attractive to investors. "Everyone wants to be in a safe haven, but once you go down in the capital structure, it's not looking so good," said Julia Tcherkassova, a strategist at Barclays Capital in New York.

For more news and information visit Blumberg Capital Partners.

Fitch Ratings Shows Fewer CMBS Due in 2012

Fitch Ratings has released their latest finding on the U.S. commercial mortgage backed securities (CMBS) sector with some encouraging news for the coming year as fewer loans are coming due in 2012. In transactions rated by Fitch, approximately 1,200 commercial mortgage loans totaling $17.3 billion are scheduled to mature in 2012, representing a sizeable drop compared to 2,000 loans totaling $22.5 billion that matured in 2011. The largest concentration of maturing loans in 2012 will come from loans secured by office properties, representing 38% of impending maturities reported the Wall Street Journal.

Fitch continues to expect the majority of loans to payoff at maturity despite the short term volatility of the capital markets. "Most maturing loans, particularly those from earlier vintages, benefit from stable performance and years of scheduled amortization, which make them more easily financeable in today's market," said Adam Fox, Senior Director at Fitch Ratings. The most challenging loans to refinance are those that were originated in 2007, the peak of real estate values. "Borrowers will likely need to contribute additional equity to secure financing for five-year loans."

For more news and information visit Blumberg Capital Partners.

Investcap Advisors Acquired by Trepp

Trepp LLC announced that it has acquired Investcap Advisors LLC, a Waltham-based commercial mortgage backed securities (CMBS) firm according to a GlobeSt article. The terms of the deal were not disclosed, but Trepp has said that the new acquisition will expand its offering of commercial real estate loan and property surveillance products. Scott Barrie, Investcap’s founder, will be joining Trepp as a managing director.

"We are thrilled to be joining the Trepp team," said said Scott Barrie, managing director of Investcap Advisors. "I look forward to helping Trepp expand the depth and breadth of its offerings and I welcome all of the additional benefits that Investcap clients will get given the talent and scale of the Trepp organization."

"We are constantly striving to increase the value of our services and I am confident that our acquisition of Investcap is aligned with that objective," said Annemarie DiCola, Trepp's CEO. "We have great respect and admiration for Investcap and I look forward to leveraging their great real estate and technology expertise."

For more news and information visit Blumberg Capital Partners.

Strategic Storage Trust Secures $29.1M CMBS Loan

Citigroup Global Markets Realty Corporation, a CMBS lender, provided a $29.13 million loan to Strategic Storage Trust for the refinancing of 11 of its properties in various locations throughout the United States according to National Real Estate Advisor. The ten year loan was set at a fixed interest rate of 5.77% and a 30-year amortization. CBRE Capital Markets arranged the financing.

"This financing was our first time utilizing a CMBS execution since the 2007 change in the market," said H. Michael Schwartz, CEO of Strategic Storage Trust, Inc. "Despite the more constrained documentation and extensive due diligence requirements of the new CMBS programs, the CBRE team did an excellent job helping us navigate our way through the process and closing the financing. The low 10 year fixed interest rate will be accretive for our FFO going forward as the money is invested in new acquisitions." The 11 facilities are located in Metro Chicago, Las Vegas, Alpharetta, Biloxi, Florence, Gulf Breeze, New Jersey, and West Mifflin for a total of 7,785 units and 944,500 square feet.

For more news and information visit Blumberg Capital Partners.

Freddie Mac's New CMBS K-Deal Offering

Freddie Mac announced this week that it would be offering new Structured Pass-Through Certificates ("K Certificates") multifamily mortgage-backed securities. The K-010 Certificates will be offered to the market by a network of dealers led by J.P. Morgan Securities LLC and Wells Fargo Securities LLC as Co-Lead Managers and Joint Bookrunners for the transaction. Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., Jefferies & Company, Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated have been named as Co-Managers for the transaction. The company expects to offer approximately $1 billion in K Certificates ("K-010 Certificates"), which are expected to settle on or about February 10, 2011.

"We are very pleased to announce our first K-Deal for 2011, which represents the first of many deals we expect to issue this year as our securitization activity grows," said David Brickman, vice president of Multifamily CMBS Capital Markets for Freddie Mac. "This offering also includes a new feature – this is the first K-deal in which two rating agencies were engaged to provide conventional public ratings."

For more news and information visit Blumberg Capital Partners.

CMBS Markets Better Than Anticipated

CoStar released a new article this week titled "CMBS Markets More Hardy Than Doomsters Speculated" observing that, despite analysts bracing for a flood of defaults, the CMBS markets appear to be performing better than anticipated. An excerpt:

Predictions earlier in the year of a CMBS tsunami of defaults flooding the market largely missed their mark. Delinquencies, which were forecast to hit 12% by 2012, now seem likely to top out at right around 10% this year. And issuance last year tripled from 2009's anemic $5 billion to $16.1 billion in 2010, with 40% of the year's issuance occurring in the last quarter of the year - a much faster recovery than many anticipated, according to Christopher T. Moyer, an associate with Cushman & Wakefield Sonnenblick-Goldman LLC.

"Three major factors contributing to the stabilization of the CMBS delinquency rate," David Tobin, principal of Mission Capital Advisors in New York, told CoStar. "New originations have helped reduce overall delinquency. Conduit programs have re-started or started anew because of the pending maturity avalanche that is expected, because secondary market performance of CMBS has been strong following the credit implosion, and because firms perceive CMBS to have less credit and regulatory risk than RMBS [residential mortgage-backed securities]."

For more news and information visit Blumberg Capital Partners.

$471M JV With Inland American and Centro

A definitive joint venture has been announced this week between Inland American CP Investment, LLC, a wholly owned subsidiary of Inland American Real Estate Trust, Inc., and Centro NP Residual Holding LLC, a subsidiary of Super LLC, which is jointly owned by CER, Centro Properties Group and CMCS40, on 25 retail shopping centers with a total value of approximately $471 million according to a CoStar report.

Goldman Sachs and J.P. Morgan provided the joint venture 10-year CMBS financing of approximately $310 million secured by 24 properties within the joint venture. "We believed that these were quality properties when we purchased the original loan participation, and this new joint venture agreement reaffirms that we still believe in them," said Michael Podboy, Vice President, Inland American Business Manager & Advisor, Inc. "We are excited about our partnership with Centro and the resolution of our existing participation on a portion of the prior first mortgage loan as it provided an attractive business deal. These are high-traffic shopping centers with high occupancy rates, which demonstrates their strong mix of national and regional retail tenants, including Wal-Mart, Publix, Kroger, Best Buy, Kohl's, Staples, Bed Bath & Beyond and T.J. Maxx."

For more news and information visit Blumberg Capital Partners.

NAR Says CRE Market Stabilizing, Vacancies Peaking

According to the National Association of Realtors® the commercial real estate markets are flattening out and appear to be stabilizing. The association expects modestly improving fundamentals in the coming year. "Property fundamentals are improving, investment capital is slowly flowing back into the sector, commercial mortgage originations are increasing, and demand for CMBS issuance is gaining traction," Standard & Poor's said in a Bloomberg report. An excerpt from NAR's office market findings:

Vacancy rates in the office sector, where a large volume of sublease space remains on the market, are forecast to decline from 16.7 percent in the current quarter to 16.4 percent in the fourth quarter of 2011, but with very little change during in the first half of the year.

The markets with the lowest office vacancy rates currently are New York City and Honolulu, with vacancies around 9 percent. All other monitored markets have double-digit vacancy rates.

Annual office rent is expected to decline 1.8 percent this year, and then slip another 1.6 percent in 2011. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be a negative 3.7 million square feet this year and then a positive 16.4 million in 2011.

For more news and information visit Blumberg Capital Partners.

OneWest Bank Buys $1.4B CMBS Portfolio

OneWest Bank, formerly IndyMac Bank, announced the purchase of a $1.4 billion multifamily and commercial real estate loan portfolio from Citibank. The deal, which includes approximately 600 loans as part of the portfolio, was closed immediately, the terms of which were undisclosed.

"We are pleased to be able to work with Citibank to complete this transaction. This portfolio purchase represents our ongoing commitment to Commercial Real Estate lending. We are excited to add quality earning assets to our balance sheet and look forward to providing all of the banking services that OneWest has to offer to our new customers," said OneWest Bank's President and CEO Joseph Otting.

For more news and information visit Blumberg Capital Partners.

Dallas' Davis Building Up for Sale

The Davis Building, a 20 story high-rise in downtown Dallas, has been put up for sale according to Dallas Business News. The property, owned by a partnership set up by Hamilton Properties, was financed with $32.6 million in CMBS debt that has been turned over to a special servicer; the owners have been unable to restructure or replace the financing. Marcus & Millichap Real Estate Investment Services will be marketing the property for sale. "It's the kind of quality asset that only comes to market once every decade or so," said Tom Huth of Omnium Management Co., who's been hired to oversee the Davis Building disposition. "The building is close to 90 percent leased and is doing very well."

Completed in 1925 at 1309 Main St. in Dallas, the property was the former home of the Republic National Bank, a high profile bank until the Savings and Loan crash of the '80's. The building was vacated in 1986 when the owners of the building planned to update the office building, and was later opened as a residential high-rise.

For more news and information visit Blumberg Capital Partners.