No Kidding.... AAA to BBB- And Back To AAA Within One Week

Looks my rare one and only cheer of the rating agencies ( see No Kidding..... S&P Is Acting Responsible & Threatens To Blow Up Fed´s CRE Bailout Stunt Via TALF ) was as feared premature..... You really cannot make this up..... This is definitely a new low ( even for S&P ).... Let´s hope Bloomberg is right that the change is only related to three 2007 CMBS tranches......UPDATE: S&P Commits Professional Suicide With Ratings Round Trip, Underlying CRE Remains Toxic Garbage via Zero Hedge & .July 22nd, 2009S&P upgrades CMBS to AAA week after downgrading to BBB- R. Winkler....

Sieht ganz so aus als mein erster positiver Gefühlsausbruch in Sachen Rating Agenturen ( siehe No Kidding..... S&P Is Acting Responsible & Threatens To Blow Up Fed´s CRE Bailout Stunt Via TALF ) ad absurdum geführt worden ist. Was da gerade abgeht kann man getrost als neues Allzeittief in Scahen Unabhängigkeit & Glaubwürdigkeit von S&P betrachtenbetrachten. Wer da wohl "interveniert" hat....... Bleibt hier zumindest zu hoffen das Bloomberg Recht hat das vorerst nur 3 CMBS aus dem Jahr 2007 die Wiederauferstehung feiern durften.....UPDATE: S&P Commits Professional Suicide With Ratings Round Trip, Underlying CRE Remains Toxic Garbage via Zero Hedge & July 22nd, 2009S&P upgrades CMBS to AAA week after downgrading to BBB- R. Winkler

S&P Reverses Ratings After Downgrades

In a reversal in its evaluation of a clutch of mortgage bonds backed by commercial property, Standard & Poor's on Tuesday raised the ratings on several securities it had downgraded a week ago.

The move came the same day the Obama administration detailed a plan to overhaul regulation of credit-ratings firms by requiring increased disclosure and stronger oversight, and curbing the practice of "ratings shopping."

In the S&P action, among the bonds returned to the top-notch triple-A category from the triple-B minus category are securities that make up the benchmark GG-10 deal.

The ratings firm said it raised the ratings following the implementation of its "recently updated criteria."

S&P spokesman Adam Tempkin said in an email that the firm had received inquiries from market participants on how it applies losses in the AAA category "that prompted us to clarify our approach. In doing so, we are also introducing refinements to the approach."

The upgrade means that these bonds are now eligible for a Federal Reserve program that offers investors cheap loans to buy them.

S&P Restores Top-Ratings to Commercial-Mortgage Bonds

July 21 (Bloomberg) -- Standard & Poor’s backtracked on ratings cuts issued last week and raised the ranking on commercial mortgage-backed debt from three bonds sold in 2007.

The securities, restored to top-ranked status, had been downgraded as recently as last week, making them ineligible for the Federal Reserve’s Term Asset-Backed Securities Loan Facility to jumpstart lending.

S&P lowered the ratings on a class of a commercial mortgage-backed bond offering from AAA to BBB-, the lowest investment-grade ranking, on July 14.

The New York-based rating company reversed the cut today, S&P said in a statement. In a related report, S&P said it adjusted assumptions on the timing of projected losses on the mortgages.

Debt rated below AAA isn’t eligible for the Federal Reserve’s TALF. Investors sought $668.9 million in loans from the Fed to purchase so-called legacy commercial mortgage-backed bonds on July 16, the first monthly deadline to finance the purchase of the securities.

S&P’s CMBS flip-flop FT Alphaville

Let’s be very clear here: one week ago, according to S&P’s “independent judgment, testing and analysis” a clutch of Goldman’s CMBS ransactions were deemed sufficiently troubled to merit deep downgrades.

One week and some “refinements” later, and “class A-2, A-3, and A-AB commercial mortgage pass-through certificates from GS Mortgage Securities Trust 2007-GG10″ are back to triple-A.

CMBS-saga, cause and correlation
FT Alphaville presents the following CMBS-saga timeline:

- May 19 - Fed announces that it will expand the Talf to include certain legacy CMBS.

- May 28 - S&P warns it will likely downgrade tens of billions of AAA-rated CMBS after tweaking its ratings methodology, including CMBS owned by Goldman Sachs, Credit Suisse, JP Morgan and Morgan Stanley, among others.

- May/June - Investors slowly cotton on to the fact that Talf-eligible CMBS needs at least two triple-A ratings.

- June 16 - The initial subscription for Talf loans for new CMBS fails. No one applies.

- Early July - S&P is reportedly “crushed with client calls” about the proposed new ratings.

- July 16 - Investors ask for a paltry $668.9m at the second Talf legacy CMBS offering. (By way of contrast, an estimated $300bn to $500bn of CMBS is scheduled to mature this year).

- July 21 - S&P reverses its decision to tweak its CMBS rating methodology.

We’re not suggesting these events are related, but you have to wonder …

UK CRE Now Off 45 Percent From The Peak.......

Could be worse if you are a foreign investor..... The British Pound is 20 percent off against all other major currencies over the past 12-18 months.....

Wenn man jetzt noch bedenkt das das britische Pfund gegenüber allen relevanten Währungen auf Jahressicht über 20% verloren hat sieht die Lage für ausländische Investoren noch düsterer aus...... Der Sektor der gewerblichen Immobilien dürfte schon sehr bald die Schlagzeilen mit spektakulären Pleiten dominieren..... Mich wundert das die in Deutschland dominierenden offenen Immobilienfonds ( etliche mit signifikanten UK Exposure siehe Chart Geographische Verteilung der Objekte In Offenen Immobilienfonds via FAZ/Scope ) trotz einer regelrechten Implosion im gesamten Sektor ( plus der teilweise drastische Währungseffekt in UK & Osteuropa ) querbeet über alle Regionen es noch immer schaffen keine Verluste auszuweisen...... Denke das spätestens wenn die Mieterneuerungen anstehen die ein oder andere Überraschung "droht".....

“Losses on UK commercial real estate could equal subprime” FT Alphaville BNP Paribas analysts are worried about the health of the UK’s commercial real estate sector. In a note released on Friday, they warned that a “combination of rising vacancy rates, falling rentals and extraordinarily difficult financing conditions will almost certainly drive UK CRE losses higher.”

Analysts Vivek Tawadey and Olivia Frieser contend that CRE is the “next leg of the credit story” in both the US and the UK, which they believe could see a major CMBS default.

From the note (any emphasis FT Alphaville’s):

Bonds backing CRE assets of a UK property investor (Simon Halabi) are likely to default on £1.15bn of debt. In this particular case, the values of the nine “prime” London office buildings (included the offices of JPM, the UK headquarters of Aviva, the Naval and Military Club amongst others) that were securitised have fallen from £1.8bn in November 2006 to £929mn as of 8 June, a reduction of almost 50%.

According to IFD, UK commercial properties values have been declining fast with peak to current declines of around 45%, with major declines noted in all major segments - retail, offices and industrials

At the same time the amount of available floor space for occupation increased at the fastest pace since 1999 in all regions with the exception of London (Chart 2) and thevalues of inducements rose at its fastest pace since the survey’s history in 1999. Collectively this implies that an upward correction in prices in the foreseeable future is unlikely.

> I would love to see a similar stat for Dubai ( see The Upcoming Skyscraper Tsunami..... )

> Ich würde liebend gerne eine ähnliche Statistik für den Markt in Dubai sehen ( siehe The Upcoming Skyscraper Tsunami..... )

Tawadey and Frieser also point to the refinancing risk ahead:

Around £43bn (or 19%) of all CRE loans comes due for repayment in 2009. A further 14% matures per year annually in 2010 and 2011 (Chart 3) or in excess of £100bn over the next 3 years, implying very significant refinancing risk inevitably leading to higher defaults.

The fact that only 10% of CRE loans are securitised in Europe (US: 30%), also underscores that more of these loans are held on bank books, leading to potential write-downs down the line.

S&P On US CMBS / CRE FT Alphaville

The agency wants CMBS credit enhancement levels sufficient for AAA-rated tranches to be able to withstand some pretty severe declines (40 to 50 per cent) in the value of commercial property.

> So it looks like 50 percent off is the new normal...... And watching the next graph ( HT Zero Hedge ! ) i´m not sure if this will be enough..... Needless to say that the Fed just a few weeks ago has proposed a CRE TALF program to buy tons of this crap ( No Kidding..... S&P Is Acting Responsible & Threatens To Blow Up Fed´s CRE Bailout Stunt Via TALF ). It will be fun to watch how they will go along with the collateral criteria..... They already have loosened it once ( see ( see Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ). .....

> Sieht ganz so aus als wenn eine coole Halbierung vom Top in den ehemals heißgelaufenen Märkten eher die Regel als die Ausnahme ist....... Bin mir sicher das Banken in Ihrer bekanntermaßen vorausschauenden Weitsicht hierfür ausreichend "Vorsorge" getroffen haben..... Wenn man sich jetzt die nächste Grafik ( Dank an Zero Hedge ) ansieht dürfte klar werden was sich für ein Debakel zusammenbraut....... Möchte nur noch mal zur Belustigung darauf hinweisen das die Fed vor wenigen Wochen extra ein TALF Programm gestartet hat um für wahrscheinlich bis zu 100 Mrd $ den Giftmüll zu kaufen ( siehe No Kidding..... S&P Is Acting Responsible & Threatens To Blow Up Fed´s CRE Bailout Stunt Via TALF ) ...... Bin gespannt wie weit die Fed noch sinken kann....Bisher hat Sie bereits einmal die Bedingungen für die Sicherheiten gelockert ( siehe ( see Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ).......

UPDATE :

Graph
European Top 20 From JPM’s CRE Risk List

( Note: Data from end of 2008! )

No Kidding..... S&P Is Acting Responsible & Threatens To Blow Up Fed´s CRE Bailout Stunt Via TALF

Pobably the most underreported news from yesterday... The timing of the move ( a tsunami is not an overstatement ) makes it even more remarkable..... To put this in context lets remember that last week the Fed has continued with the "war on taxpayers" and has decided to bail out large parts of the commercial real estate complex ( see Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ). The only precondition was....

Kaum zu fassen das gerade die Ratingagentur S&P verantwortungsvoll ( wenn auch einige Quartale zu spät ) reagiert und das Offensichtliche ausspricht. Praktisch alle in den letzten Jahren vergebenen Kredite die durch gewerblich genutzte Immobilien abgedeckt sind drohen analog dem privaten Wohnungsmarkt zu implodieren. Das besondere ist der Zeitpunkt der Ankündigung..... In der letzten Woche hat die Fed in der gewohnt verantwortungslosen Art und Weise beschlossen einen Großteil der gewerblichen Immofinanzierung mit Steuergeldern zu einem Bailout zu verhelfen der aufgrund der schieren Größe des Sektors leicht & locker die 100 Mrd $ übersteigen könnte ( siehe Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ). Wenn man nun noch den heutigen Treasury Crash hinzunimmt dürfte das nachfolgende Bild nicht wirklich übertrieben sein........ :-)

An "AAA" rating.....

Die einzige Voraussetzung zur Teilnahme an der Party war ein AAA geratetes Papier....

Current Ratings: As of the TALF loan closing date, the CMBS must have a credit rating in the highest long-term investment-grade rating category from at least two TALF CMBS-eligible rating agencies

Should be no surprise to see that the Fed is deperate to get this kind of crappy collateral with exploding delinquencies onto their balance sheet......Just in time........ Make sure you see more "encouraging" CRE charts via Realpoint / Zero Hedge. Interesting to see that Realpoint is also a "TALF CMBS-eligible rating agency". Judging from their charts & comments it is unlikely that they will "help" the Fed...... Add todays Treasury Crashand i think the picture from Bernanke is even more spot on....... :-)

Inzwischen sollte es keinen mehr überraschen das die Fed eine der am schnellsten implodierenden Anlageklassen auf Teufel komm raus in Ihre Bilanz holen möchte..... Wie dramatisch schnell sich die Lage im gewerblichen Bereich verschlechtert verdeutlichen diese Charts via Realpoint zeigen. Diese Charts sind umso aussagekräftiger wenn man bedenkt das Realpoint ebenfalls zum ausgewählten Kreis der 5 Ratingagenturen gehört denen es erlaubt ist die CMBS zu raten. Nach allem was ich bisher von denen gelesen habe dürften die Kopfschmerzen der Fed eher noch zunehmen.........

bigger/größer

S&P To Downgrade Most Of 2005-2008 CMBS Classes, Derails TALF For CMBS

It is likely that the proposed changes, which represent a significant change to the criteria for rating high investment-grade classes, will prompt a considerable amount of downgrades in recently issued (2005-2008 vintage) CMBS.

Classes up through the most senior tranches of outstanding deals (so-called "A4s," "dupers," or "super-duper seniors") are likely to be affected. Our preliminary findings indicate that approximately 25%, 60%, and 90% of the most senior tranches (by count) within the 2005, 2006, and 2007 vintages, respectively, may be downgraded

Once more i have to quote Tyler ( the man who needs obvioulsly no sleep ) from Zero Hedge.....

Einmal mehr muß ich Tyler ( der Mann braucht anscheinend keinen Schlaf ) von Zero Hedge....

"And all this just days after the government had finally drafted what it hoped was the last and final version of its TALF term sheet. Lets rewind: in the May 19th version of TALF, in order the be eligible, CMBS "must not have a rating below the highest investment-grade rating category from any TALF CMBS-Eligibile Rating Agency." Throw in a downgrade of 90% of the 2007 vintage and it's time to go back to the drawing board.....

Basically, the impending downgrade would make Super Duper CMBS ineligible for TALF

It is a safe bet that the Fed will come back as soon as a week from today and announce TALF 364.7, in which the requirement for a current AAA rating is eliminated altogether.

In fact, as I speculated (jokingly), anything rated Default or higher will soon be perfectly eligible collateral for taxpayer funding. Because that's just how good a fiduciary of taxpayer money the Federal Reserve is."

> I think he is right..... Another stunt could be that the other agencies ( TALF CMBS-eligible rating agencies are DBRS, Inc., Fitch Ratings, Moody’s Investors Service, Realpoint LLC and Standard & Poor’s ) with Realpoint the exception ( see earlier link ) are as "helpful" as always and won´t issue any downgrade until the TALF is working and the most toxic stuff is already on the Fed´s balance sheet......

> Nach meinen Erfahrungswerten was die Fed angeht dürfte Tyler recht haben..... Eine weitere Möglichkeit wäre allerdings auch das die anderen zugelassenen Ratingagenturen(TALF CMBS-eligible rating agencies are DBRS, Inc., Fitch Ratings, Moody’s Investors Service, Realpoint LLC and Standard & Poor’s ) wie bisher beide Augen verschliessen und mit Ihren Downgrades "hilfreich" warten bis TALF implementiert und die "giftigsten" Papiere bereits in der Fedbilanz gelandet sind..... Möchte Realpoint ( siehe vorherigen Link ) von meiner Kritik ausdrücklich ausschließen

What happens if an ABS that was eligible for TALF financing is downgraded by an NRSRO?

Nothing happens to existing TALF loans secured by that ABS. However, the ABS may not be used as collateral for any new TALF loans until it regains its status as eligible collateral.

I highly recommend the blog Zero Hedge ( soon on my blogroll ). Here is much more from Tyler on the CMBS topic. UPDATE: Report: $75 billion of CMBS Market Capitalization Lost in Two Days

Ihr merkt schon das ich den Blog Zero Hedge für extrem lesenswert halte ( findet sich demnächst sicher auch auf meiner Blogroll wieder ). Empfehle zudem die gesammelten Werke von Tyler zu diesem Thema. UPDATE: Report: $75 billion of CMBS Market Capitalization Lost in Two Days

Another Private Equity Deal That Went Bust Within 24 Months

Commercial Real Estate (CRE) & Private Equity...... When ever you hear this combination during the next few years it will be almost to 100 percent in connection with disastrous deals...... No surprise that Blackstone & Fortress are involved once again....... :-) The enitire CRE complex will be the next very very big headache for the balance sheets from banks...... It´s a safe bet that we will hear similar stories also from the LBO front on a regularly basis ( see Tribune Co. Could Be Flirting With Bankruptcy NYT) ......

Wann immer in den nächsten Monaten die Begriffe Commercial Real Estate & Private Equity im Zusammenhang auftauchen kann man sicher sein das es sich fast zu 100% um das implodieren von Mrdschweren Deals handelt...... Sicher auch kein Zufall das die Namen Blackstone und Fortress in schöner Regelmäßigkeit auftauchen..... Der gesamte Bereich der gewerblichen Immobilien wird noch für extrem große Kopfschmerzen bei den Bänkern und entsprechend große Löcher in den Bilanzen der Banken sorgen...... Wir werden uns an ähnliche Schlagzeilen vor allem auch im Zusammenhang mit den berühmt berüchtigen LBO´s von "Pirate " Equity sowie fremdfinanzierten Übernahmen im allgemeinen ( z.B. CONTI/SCHAEFFER..... ) gewöhnen müssen..... UPDATE: Erster großer Autozulieferer meldet Insolvenz an Manager Magazin

WSJ Extended Stay Could Transfer Chain to Lenders
Extended Stay Hotels Inc. is in early talks that could result in turning the hotel chain over to its lenders, a sign of the deep trouble awaiting the commercial real-estate business.

Extended Stay's difficulties signal a new phase of distress in commercial real estate, because they arise directly from the weakening economy. Until now, problems have mostly involved developers unable to obtain refinancing for otherwise healthy operations.

Lightstone Group LLC, Lakewood, N.J., bought Extended Stay from Blackstone Group LP for $8 billion in April 2007. The deal was highly leveraged, hastening Extended Stay's troubles. The chain has no major debt expirations due soon

But Extended Stay's cash flow is crashing, as business activity across the country contracts. That is putting fewer people in its 684 U.S. and Canadian hotels, used by corporate travelers on long assignments. Extended Stay has 13,000 employees. It is too soon to say if a takeover by lenders would result in layoffs or hotel closings, according to people familiar with the matter.

As conditions deteriorate, Extended Stay has been forced into discussions with its lenders, and people involved in the talks say a transfer of ownership could come within a month or two. Extended Stay has recently hired Lazard Ltd. as financial adviser and New York law firm Weil Gotshal & Manges as bankruptcy counsel......

During the real-estate lending boom, Wall Street originated $600 billion of commercial mortgage-backed securities. The default rate on commercial mortgage debt has remained near historic lows, even while residential-related debt suffered a severe downturn.

But that is now beginning to change, sending new shock waves into much-battered banks, private-equity funds and other financial institutions that participate in the $1 trillion commercial real-estate debt market. Hotel landlords typically are the first to feel the pain in a downturn because hotels have the shortest leases in real estate -- one night at a time.

bigger/größer Thanks to Calculated Risk

> I just cannot wait for this deal Hilton's $20 Billion Sale to Blackstone Is Completed to blow up........

> Ich denke es wird nicht mehr lange dauern und der absolute Königsdeal unter den Hotelbuyouts ( Hilton's $20 Billion Sale to Blackstone Is Completed ) dürfte in ähnliches Fahrwasser geraten.....

( OKTOBER 2007 ) The sale, for $26 billion including debt, is a record for the hotel industry. New York-based Blackstone, which already owns the La Quinta lodging chain, joins Apollo Management LP and TPG Inc. in targeting hotel companies for their cash flow and real estate.

An Extended Stay failure reveals how a commercial real-estate downturn could ripple through the financial system.

When Lightstone Group and preferred equity partner Arbor Realty Trust bought Extended Stay from private-equity firm Blackstone Group in 2007, it borrowed more than $7.4 billion. Wachovia Corp., Bank of America Corp., Merrill Lynch & Co. and Fortress Investment Group put in $3.1 billion in so-called mezzanine financing, which isn't as highly secured as other types of debt. People involved in the transaction say an analysis of the company's value shows that much or all of the mezzanine debt could be wiped out in any renegotiated deal.

Bondholders have hired Houlihan Lokey Howard & Zukin for restructuring talks.

Extended Stay is still meeting its debt service, but people familiar with the matter say it could default within the next 60 days if the economic downturn continues as expected. Revenue per available room, or RevPar, a common hotel-industry measure, will be down more than 10% this year at Extended Stay, according to someone familiar with the matter. Much of that decline has come in the last two months.

But it was the Extended Stay deal that was Mr. Lichtenstein's biggest. Extended Stay has operations in 44 states and Canada. It was also among his riskiest deals, as

Lightstone, with help from Arbor Realty, arranged to put down just $600 million of equity, or 8% of the total price. (Blackstone, which made about $3 billion on the sale, kept an equity interest.)

Mr. Lichtenstein saw increasing demand from business travelers who needed hotel accommodations for weeks or even months at a time. He also believed he could unlock value at Extended Stay by taking advantage of the chain's size and paying more attention to management.

A couple of months after the deal closed, Mr. Lichtenstein acknowledged the easy money that helped him complete the deal had disappeared. "We were one of the last deals in," he said.

Troubles also have surfaced at Lightstone's Prime Retail division, which owns roughly 30 malls and shopping centers in the U.S. and Puerto Rico. Lightstone has sought to turn over at least six of its malls to lenders after falling behind on debt payments.

UPDATE via NYT:

Similar screenplays/attributes can be attached to almost every other deal from "pirate" equity since 2005....

Ähnlichen Drehbüchern dürften fast alle Übernahmen von "Pirate" Equity seit 2005 früher oder soäter folgen......

In a report by the ratings agency Standard & Poor’s, 86 companies weren’t meeting their debt obligations through mid-November of this year, with 53 of those, or 62 percent, having ties to private-equity firms at one point in their lives.

Hypo Real Estate Crashing 35%...CEO "We Did A Fantastic Job"......

It does not often happen that a member of the main German index DAX is crashing 35 percent within minutes. Well, yesterday Hypo Real Estate which concentrates on commercial real estate did just that..... One reason was the "surprising" write down on cdo´s..... Surprising indeed! On top of this i´m pretty sure the desasterous conference call with an incompetent management team didn´t help either.... When the CEO is praising his team and is telling the listeners that they have done a ( Quote) "fantastic job" they deserve every percent of the slump...

Es passiert nicht oft das ein DAX Titel mal eben 35% innerhalb weniger Minuten verliert. Hypo Real Estate ist dies in grandioser Weise gelungen....Einer der Gründe war die "überraschende" Abschreibung auf den 1,5 Mrd hohen CDO Bestand..... Wenig hilfreich war sicher auch der blamable Auftritt des gesamten Managementteams während der Telefonkonferenz ... Man ist fassungslos wenn der Boss sich und sein Managementteam damit lobt das Sie einen ( ZITAT!) "Super Job gemacht haben".... Finde Sie sind mit nur 35 % noch glimpflich davon gekommen....

They are lucky that they have historically a strong business base ( 40 % ) in Germany. But as you might expect they have broadened their base and have now a exposure of roughly 25% in the riskiest markets ( 9% US, 12% UK, 4% Spain). And they are already talking about new opportunuties in the US. They would love to finance what they describe as "bargains" on 5th avenue from sellers that are under pressure to refinance like Macklowe or 666 Fifth Avenue . Lets hope that todays bargains won´t look like trophy buildings in hindsight

Also nice to see that they are highlighting their very strong business in 2007.... It remains to be seen if this won´t backfire very very soon......

Die können von Glück reden das die historisch bedingt noch immer einen großen Anteil (40%) in Deutschland machen. Wie nicht anders zu erwarten hat aber auch die HRE Ihr Glück im Ausland gesucht und bestreitet jetzt ca 25% in den riskantesten Märkten ( 9% US, 12% UK, 4% Spanien). Nettes timing.... Zudem sieht das Management weiter große Möglichkietn gerade in den USA und ist in konkreten Gesprächen vermeintliche Schnäppchen zum Beispiel an der 5th Avenue von in Problemen geratenen Verkäufern wie Macklowe oder 666 Fifth Avenue zu finanzieren. Bleibt zu hoffen das die vermeintlcihen Schnäppchen sich rückblickend auch als solche erweisen.....

Ich denke das der als besonders positiv hervorgehobene Geschäftsverlauf in Sachen Neugeschäft von 2007 sich sehr bald als Bumerang erweisen wird...


HRE Presentation

Looking at the low impairments taken i´ll bet that the next write down is almost guaranteed.... But management has treid to insure that the 400 mio writedown were conservative and the future risks to the downside is limited..... But this was the same in November when they took only a 4 mio charge......

Wenn man sich die meiner Meinung nach viel zu niedrigen Abschreibungen ansieht gehe ich jede Wette ein das die nächste Abschreibung schon sehr bald kommen wird. Das Management hat versucht die 400 Mio Abschreibung als Konservativ darzustellen die weiteres Abwärtpotential vorwegnehmen. Leider haben die ähnliches bei der letzten Abschreibung von leduglich 4 Mio Ende 2007 auch gesagt......

I´m pretty sure it doesn´t take long and the rating agencies will slash the rating....

Dürfte nicht lange dauern und die Ratingagenturen werden den Daumen sicher senken...

"Honey, I Shrunk The Company" Centro Properties Down 76 Per Cent

Another one in the series Honey, I Shrunk The Company"....

Ein weiterer Kandidat aus der Serie Honey, I Shrunk The Company".....

Flashback March 2007

Centro Properties of Australia is set to become the fifth-largest operator of shopping centres in the US after agreeing to buy New Plan Excel Realty Trust for $3.7bn in cash. The deal is the biggest acquisition to date by an Australian real estate investment trust in the US. Including debt, it amounts to $6.2bn. Centro said it would finance the takeover by issuing new shares worth A$1.25bn in both the company and the trust, as well as raising a further A$750m from fund inflows and hybrid financing. JPMorgan Chase will underwrite the share offering.

Shopping for subprime victims, down under FT Alphaville
Anyone still needing to be convinced that synthetic financial strife has real world consequences could look down under on Monday - to Centro Properties, the Australian shopping mall operator. A cut in its 2008 earnings forecast of 13.6 per cent caused a 76 per cent plunge in its share price - bringing Centro’s market cap down from A$4.82bn to A$1.15bn.

Bloomberg

Centro Properties Group, the owner of 700 U.S. shopping malls, slumped 76 percent in Sydney trading and said it's struggling to refinance debt because of the collapse in the U.S. subprime housing market.

With A$26.6bn of property on its books, the company is having to face up to sharply higher financing costs and is already looking at selling its US acquisitions to private equity buyers, although no names were mentioned. As recently as March it paid US$6.2bn to acquire New Plan Excel Realty Trust.

Taken from todays Centro Presentation

Centro said it had won an extension for all of its maturing debt - but only up until February 15. Refinancing talk continuing in the meantime. Chairman Brian Healey said:

Tightened credit conditions have…had the effect that negotiation of a comprehensive refinancing package of these short-term facilities has not yet occurred.“It has become clear that to secure longer term financing in the current illiquid credit market, Centro will need to reduce its gearing level significantly.

Last week, Merrill Lynch said that it had doubts about Centro’s business model and rating agency Standard & Poor’s put the group on credit watch, causing a temporary suspension of Centro’s shares.

> I assume they will have to update their statement on securitisation ( and others) from their euphoric annual 2007 review

> Sieht ganz so aus als wenn die Aussagen zum Verbriefungsmodell in dem rückblickend mehr als amüsanten Rückblick für das Jahr 2007 nicht mehr ganz aktuell sind

The 2007 financial year has seen retail property continue to deliver strong total returns to investors.”
Brian Healey, Chairman

The benefits of using a CMBS funding arrangement compared to traditional
bank debt are:

• It is more flexible;
• It involves less administration; and
• It has more generous loan covenants.

OUCH!

"poster child for what was not right in the underwriting"

Schadenfreude. The fact that the core tenant is Citigroup doesn´t make things better.....

Schadenfreude pur! Die Tatsache das der Hauptmieter Citigroup ist macht die Sache sicher nicht angenehmer...


NYT Financial Ground Has Shifted Under a Record Deal
The record price paid in January for the 41-story aluminum-clad office tower at 666 Fifth Avenue — $1.8 billion — was breathtaking, even by the standards of the heady Midtown Manhattan commercial real estate market.

Making its first major foray into the Manhattan office market, the buyer, the Kushner Companies of Florham Park, N.J., paid more than three times what the building fetched in 2000.

Today, however, some real estate specialists regard the 666 Fifth Avenue transaction as a textbook example of the risky practices that were prevalent before the current credit squeeze, when many loans were based not on the actual cash flow of the building from existing rents but rather on optimistic projections of what the space might command once those leases expired.

The deal for 666 Fifth “was the poster child for what was not right in the underwriting,”....

Although 666 Fifth Avenue commanded the highest price ever paid for a single building, it does not have quite the cachet of the top Midtown office towers like the Seagram Building. Still, it has a roster of brand-name tenants — one-quarter of the space is leased to Citigroup — and is in a desirable neighborhood, where rents were climbing steadily at the time of the sale.

What raised eyebrows was the financing of 666 Fifth and other buildings sold late last year and early this year, said Robert M. White Jr., the president of Real Capital Analytics, a New York research firm.

A group of lenders led by the real estate unit of Barclays Capital agreed to provide an interest-only first mortgage of $1.215 billion based on an annual cash flow of $114 million, or 1.5 times the debt service, according to a document filed with the Securities and Exchange Commission.

But a footnote pointed out that the cash flow from existing rents would actually cover only 0.65 percent of the debt service. Mr. White calculated that the building’s shortfall amounts to $5 million a month. A $100 million reserve fund was included in the debt package to cover the shortfall.



Underwriting standards have tightened considerably since the summer, and now investors like the Kushners who bought property early in the year are finding they have to invest more of their own money — and assume more of the risk — than they had expected.

Like many buyers, Kushner relied on high-cost short-term financing to make up most of the gap between the first mortgage and the purchase price for 666 Fifth.

By the time the bridge loans had to be paid off, the theory went, the building would be refinanced or the 80,000-square-feet of glassy retail space, most of which faces Fifth Avenue, would be sold as a condominium.

It has not worked out that way. In the spring, the company hired the Carlton Group, a New York investment bank, to help it restructure the deal. But in recent weeks, the company used its own cash to pay back one $200 million bridge loan, said Jared Kushner, the publisher of The New York Observer and a principal in Kushner’s New York office. Another repayment deadline is coming up soon.

Mr. Kushner said the company had a variety of options, including “writing a big check ourselves.” The cash-rich Kushners recently sold 17,500 apartments in five Eastern states for about $2 billion, according to a spokesman.

The Kushners are thought to be much better off than Harry Macklowe, the New York real estate investor who also faces a deadline for repaying a bridge loan. Many real estate professionals say Mr. Macklowe ( read So Many Deals, So Much Debt ) could lose control of the seven Midtown Manhattan office buildings he bought this year as part of the Blackstone Group’s purchase of Equity Office Properties as well as his prized General Motors Building on Fifth Avenue between 58th and 59th Streets. .....

Their broker, Howard L. Michaels, chief executive of the Carlton Group, said the building had generated a lot of interest from investors because of the prospects for rent growth over the next few years. Leases for more than 800,000 square feet of space (out of a total of 1.45 million — with rents far below today’s market rates — are scheduled to expire before 2011.

Annual asking rents for spaces that are currently available range from $92 to $118 a square foot, according to the CoStar Group, a research company in Bethesda, Md.

MBIA, AMBAC & ACA Update

I suggest to read MBIA / Denial ? from the day MBIA released its earnings before you continue. Since then the stock has lost over 25 percent.

I find some numbers & comments from the MBIA earnings release quite interesting. MBIA has rushed into the RMBS/Commercial Real Estate market. All deals are including 2006 and 2007 commercial loans. Can´t help but i´ve heard some scary things about Commercial Real Estate and looking at CMBS Markit isn´t giving me much comfort either.......

The multi sector CDO´s are also including subprime. The spiking business comes in large part from banks that want to hedge their CMBS and CDO exposure on their balance sheets (after they failed to unload it.....). MBIA believes that their underwriting and their premiums earned are overcompensating their risk (based on their models....) .......They assumed that their worst case for their RMBS ( largely subrime) exposure with a buffer of 22-28 percent was enough when they signed the exposure in the recent years!!!!!!...... Mhhhh........

What will happen to the balance sheets from these banks if MBIA & Co won´t be able to pay the claims..... Just from looking at the chart it feels like at least some have some doubts...... It looks like the report from the short seller Pershing Square Capital Management, L.P. and the post about comon sense wasn´t so far of the mark....
Ich empfehle dringend sich zuvor MBIA / Denial ? durchzulesen. Seitdem hat die Aktie deutlich über 25% nachgegeben.

Ich finde diese Zahl aus der Ergebnisveröffentlichung von MBIA interessant. MBIA ist mit Schaum vorm Mund in den Bereich des gewerblichen Immobilienmarktes gerannt. Alle Papiere basieren Kredite aus den Jahren 2006/2007. Nachdem was ich gehört hat genau dieser Zeitraum den Peak markiert.

Die Multi Sektor CDO´s beinhalten zudem noch Subprimebestandteile. Das explodierende Geschäfft kommt fast ausschließlich von den großen Banken die verzweifelt versuchen die Papiere die sich in Ihren Bilanzen befinden abzusichern ( Nachdem Sie das in den Vorjahren nicht nötig hatten, dort wurden diese Papiere schnell weitergereicht ohne die Bilanzen zu belasten).

MBIA behauptet das die Risikoprämien mehr als ausreichend für die garantierten Risiken sind. Das war bis zu diesem Quartal allerdings auch das Argument für den Rest des Portfolios..... Immerhin haben diese Modelle vorhergesagt das Ihr Puffer von 22-28 % bei den gegebenen Garantien im Immobiliensektor (davon Großteil Subprime) mehr als ausreicht um nicht zur Zahlung herangezogen zu werden....... So kann man sich irren...... Im Nachhinnein sieht der Report vom Shortseller Pershing Square Capital Management, L.P. und über den gesunden Menschenverstand doch nicht so aus der Luft gegriffen aus...... :-)

Unschwer auszurechnen was in den Bilanzen der Banken los ist wenn MBIA sich erneut "verrechnet" hat . Und wenn man sich die Charts ansieht scheinen das zumindest einige zu glauben......

In the third quarter, U.S. structured finance ADP increased 294 percent compared with 2006 ( makes over 50 percent of earned premiums!) Several sectors contributed to the increase in global structured finance production, with particularly strong increases from CMBS pools (over 50 percent!), Collateralized Debt Obligations (CDOs) of investment grade corporate credits, commercial mortgage-backed securities pools and multi-sector (including subprime) CDOs ( 35 percent!) , as well as a whole business securitization, which generated the largest ADP for the quarter

Adjusted Direct Premiums (dollars in millions)
		Three Months Ended September 30									Nine Months Ended September 30
			2007			2006		% Change				2007		2006		% Change
Global Public Finance
United States		$	109.6		$	67.5		62	%		$	259.1		$189.2		37	%
Non-United States			66.9			31.6		112	%			187.7		133.8		40	%
Total			176.5			99.1		78	%			446.8		323.0		38	%
Global Structured Finance
United States			291.0			73.8		294	%			612.5		163.4		275	%
Non-United States			46.7			37.2		26	%			175.2		123.2		42	%
Total			337.7			111.0		204	%			787.7		286.6		175	%
Total		$	514.2		$	210.1		145	%		$	1,234.5		$609.6		103	%

If you have enough time i think it is well worth listening to the call. Scary! At least a large part from the anaylst are asking the right questions. Remembering that they are on the hook for over $ 600 billion it makes me want to buy more gold......

Wenn Ihr genügend Zeit habt kann ich empfehlen sich den Call anzuhören. Immerhin stellen einige Analysten die richtigen Fragen. Wenn man aber bedenkt das diese Firma über 600 Mrd $ an Garantien ausstehen hat möchte man doch am liebsten gleich seien Goldpsoition aufstocken.....

Replay
of MBIA Inc. Third Quarter 2007 Earnings Conference Call

This is one of the rare things were i am with Cramer Cramer: MBIA Is Toxic

Und das dürfte eine der wenigen Umstände sein das ich mit Carmer übereinstimme Cramer: MBIA Is Toxic

via Mish Downward Spiral of Deep Junk

At Thursday's close, Ambac's swaps implied a rating of "Caa1," seven levels below investment grade and 14 notches below its actual rating.

MBIA Inc's default swap spreads, meanwhile, are trading as though they carry a rating of "B2," five levels below investment grade, and 12 notches below the company's "Aa2" rating, according to Moody's data.Ambac was down another 20% on Friday.

MBIA was down another 6.7%. Clearly the market is beginning to wonder just how much those "guarantees" are worth.

> Looks like the rating agenciues are as usual way behind the curve......

> Sieht mal wieder so aus als wenn die Ratingagenturen mal wieder hoffnungslos der Musik hinterherrennen....

MBIA / Denial ?

I´m no expert on this kind of financial alchemy. But the common sense tells me that with over $115 billion in CDO & $ 49 billion in RMBS exposure ( see pfd Subprime RMBS Conference Call Presentation ) and after some of the news we have heard on a daily basis from all over the world for months now the view from MBIA doesn´t sound "conservative"..... The fact that MBIA insures well over $ 600 billion in total with just $ 7 billion in capital and their bonds are traded as junk doesn´t give me much comfort either....

Ich bin definitiv kein Experte in Sachen Finanzakrobatik. Ader der gesunde Menschenverstand sagt mir das mit Engagements von 115 Mrd $ in CDO´s und 49 Mrd $ im Hypothekenmarkt ( siehe PDF Subprime RMBS Conference Call Presentation ) und unter dem Eindruck der ganzen Horrormeldungen die uns jetzt seit Monaten heimsuchen die Auslegung von MBIA nicht sonderlich konservativ anmuten.....Das MBIA insgesamt für über 600 Mrd $ and Krediten mit knapp 7 Mrd$ an Kernkapital gerade steht & die deren eigene Anleihen mit junk gehandelt werden ist auch nicht gerade vertrauenserweckend....

MBIA Inc. Reports
The decline was due to a pre-tax net loss of $352.4 million, or $1.80 per share, that the Company recorded in the third quarter on financial instruments at fair value (“marked-to-market”) and foreign exchange.

The loss was a consequence of wider spreads affecting the valuation of the Company’s structured credit derivatives portfolio. Compared with the previous quarter, spreads widened significantly on Commercial Mortgage-Backed Securities (CMBS) collateral and on other asset-backed collateral in the Company’s structured credit derivatives portfolio.

The Company believes that the “mark-to-market” loss does not reflect material credit impairment.

> Lets hope the rating agencies are on top of this......

> Bleibt zu hoffen das die Ratingagenturen diesesmal auf der Höhe sind......

Got gold.....?

UPDATE:

I have just listened to the 120 minues conference call. Maybe it is not bad to have common sense.......

Ich habe mir gerade knappe 2 Stunden den Conference Call angetan. Nach dieser Erfahrung muß ich sagen das ich doch lieber beim gesunden Menschenverstand bleibe.....

MBIA Plunges After Stock Buyback Halted, First Loss

``I'm still trying to understand how the guarantors can take such low levels of mark-to-market losses relative to what the rest of the Street is taking on securities,'' said Ken Zerbe, an analyst with Morgan Stanley in New York said during the call.

Naked Capitalsim Worries About Monoline Insurers Grow

> It looks i´m not the only one wondering........

> Sieht ganz so aus als wenn ich nicht der einzige bin der sich verwundert die Augen reibt.....

Commercial property "View from the top" / Economist

More on the topic Commercial property "Dizzying heights" UK / Economist , So Many Deals, So Much Debt ( The rise and possible fall from Harry Macklow in just 6 month) & Commercial Real Estate Prices May Drop 15% in Next Year

I also want highlight some excellent posts from Toro´s fine blog Am I Wrong About REITs? & REITs - What are Institutional CIOs Thinking? and from Mish Commercial Real Estate Abyss

Mehr zum Thema Commercial property "Dizzying heights" UK / Economist , So Many Deals, So Much Debt ( Die Geschichte eines Immobilienmoguls der binnen 6 Monaten alles zu verlieren droht) & Commercial Real Estate Prices May Drop 15% in Next Year

Zudem möchte ich noch auf diese beiden fundierten Posts von Toro hinweisen Am I Wrong About REITs? & REITs - What are Institutional CIOs Thinking? sowie von Mish Commercial Real Estate Abyss

View from the top It looks a long way down from the peak of the global market for office space

BANKING crises and property crashes often go hand in hand. That is one reason why America's housing bust has so troubled investors and policymakers recently. Commercial property, too, has a history of boom and bust that has brought havoc to the financial markets: think of the Japanese property slump during the 1990s, or Britain's secondary-banking crisis of 1973-74, when too much lending to property developers helped cause the London stockmarket's worst year of the 20th century.

Even though commercial and residential property do not necessarily move together, the same factors associated with the American housing market—tighter lending standards and slower economic growth—should hurt business demand for office and retail space as well. Like residential mortgages, loans for offices and shops have been bundled up and sold to investors. So could some swanky offices and shopping centres eventually suffer the subprime fate?

Until early this year there was plenty of evidence of hubris. In February the $39 billion paid by Blackstone, a private-equity firm, for Equity Office Properties, a big landlord, was a record price for a buy-out—and the seller, Sam Zell, has a reputation for shrewdly judging the top of the market.

> More details on the deal and why it is no wonder that this deal marked the top.....commercial property madness / numbers on the blackstone-eop manhatten sale

> Hier mehr Details zum Deal der gleichbedeutend mit dem Top gewesen ist.....commercial property madness / numbers on the blackstone-eop manhatten sale

In Britain, the share prices of property firms had surged ahead of the government's decision, after years of dithering, to introduce the tax-efficient Real Estate Investment Trust (REIT) structure in January. During part of 2006, more than half the money flowing into British mutual funds was invested in property.

For whatever reason, investors have since taken fright. “The market has had a bucket of cold water poured over it,” says Tony Horrell, head of European capital markets at Jones Lang LaSalle, a commercial agent. Shares in property companies took a battering over the summer, making the sector the worst performer in the American market in May, June and July, according to Lipper, an information group.

But is this really the start of another bust or simply some judicious profit-taking? Commercial property has been the asset to own this decade. Figures from the National Association of Real Estate Investment Trusts, an industry body, show that an investment in American property at the start of 2000 would have more than quadrupled in value by the end of last year. By comparison, the leading American share index, the S&P 500, returned just 8% over the same period.
This has not been just an American phenomenon. According to the Investment Property Databank, 16 out of the 21 national property markets it covers delivered double-digit returns last year. A global economic boom, allied with a desire by investors to diversify from equities and bonds, made property appealing.

Despite investors' enthusiasm, industry experts argue that the market has not seen some of the excesses that marked previous cycles. There has not been the kind of overbuilding of skyscrapers that usually spells severe trouble. The latest survey by Reis, a research firm, found that the vacancy rate in American offices was 12.5% in the third quarter, the lowest for six years. Rents grew by 2.4% between the second and third quarters, a slower rate than before but still a respectable one. Mr Horrell says that in most European markets the fundamentals for commercial property are good and that rents should continue to grow.

Andrew Jackson of Standard Life Investments, a fund-management firm, argues that commercial-property investors are not as dependent as their home-buying counterparts on borrowed money; the average gearing of the REITs he invests in is just 31%. As a result, tighter lending standards have not had the dramatic consequences that they have had in the residential sector. There has not, as yet, been the sharp rise in loan delinquencies that was seen in subprime mortgages.

The credit crunch has undoubtedly had an effect on confidence but so far it has not been catastrophic. “A number of transactions are on hold while investors wait to see how deals are repriced,” observes Jonathan Thompson, head of real estate at KPMG, an accountancy firm. “Debt is still available but the cost has gone up a bit and the loan-to-value ratio has fallen.”

Ken Cohen of Lehman Brothers says that the volume of new loans to finance property deals has fallen by half since May and June when credit was widely available. In turn, this has led to a sharp fall in the issuance of commercial mortgage-backed securities (CMBSs), the products that consist of repackaged loans which helped propel the structured-finance market before it seized up.

All spreads from B to AAA

That means property is likely to behave in a patchy fashion. Some markets that were overextended, such as Britain's, are already seeing a retreat for the first time in 15 years. Norwich Union, an insurance company, downgraded the valuation of one of its main property funds by 2-3% in September, while British Land, a leading property group, abandoned plans to sell a shopping centre in Sheffield in northern England. In other markets, investors may start to shun properties in poor locations or with low-quality tenants. But they will still be attracted by city-centre buildings that have been pre-let or by markets that are soaring, such as Asia's.

A lot may depend on whether the debt markets recover their confidence. In America, in particular, a healthy property market requires a revival in CMBS issuance. Mr Cohen of Lehman reckons that by the new year the market could be getting back to normal. Investors will be looking to make their allocations into property for next year, he believes, and it will help that they will not have been swamped with issuance in the second half of 2007.

Commercial property is no longer the bargain it seemed a few years ago, when rental yields were well above those on government bonds. But it will probably take a recession, in America and elsewhere, for the recent wobbles to turn into an outright crash.

> As my opening links suggest i´m more bearish than the Economist.....

> Wie Ihr evtl. anhand meiner Links feststellen könnt bin ich erheblich pessimistischer als der Autor vom Economist.....