Deutsche Bank Is Doubling Down In Vegas.....

I´m pretty sure that the statement "Problem loans stable" at page 27 from their latest results won´t be repeated in the comming quarters...... Throwing good money after bad money has not often worked. This is especially true when you see the clip further down and watch the latest Las Vegas Statistics..... You really have to work at Wall Street or the financial complex to see light at the end of the tunnel..... I assume that the light is coming from a fast moving train ....

Bin mir ziemlich sicher das die Aussage "Problem loans stable" siehe Seite 27 letztes Quartalsergebnis in den nächten Quartalen sicher nicht mehr wiederholt werden kann..... Schlechtem Geld noch gutes hinterherzuschmeissen ist in den seltensten Fällen die richtige Entscheidung gewesen. Seht Euch den Clip zu dem im Feuer stehenden Projekt an und werft einen Blick auf die letzten Las Vegas Besucherstatistiken und man muß ziemlich "kühn" kalkulieren um hier auch nur ein kleines Licht am Ende des Tunnels zu sehen.... Ich tippe darauf das das Licht eher das eines heranrauschenden Zuges sein wird...... Hier noch ein passender Artikel der FAZ Ausgespielt in Las Vegas. Lesenwert!

Deutsche's Tarnished Rep WSJ

DEUTSCHE BANK dug itself into a $10 billion commercial-real-estate hole. So far, the German bank is doing a decent job clambering out. But the tale raises questions about Deutsche's judgment.

The bank's exit from its Manhattan hole is off to a fast start. Just last summer, Deutsche helped real-estate mogul Harry Macklowe buy seven office towers for $7.5 billion. Mr. Macklowe soon ran into trouble. But Deutsche persuaded him to surrender the buildings, avoiding painstaking foreclosure proceedings.

Three of the towers have already been sold, two are under contract and the last two are expected to go soon. True, they're selling for about 25% less than Mr. Macklowe paid, and Deutsche will lose money. But a swift exit at a modest loss is probably the best outcome that could have been achieved.

Las Vegas, though, is another story. Deutsche is foreclosing on the $3.5 billion Cosmopolitan Resort & Casino after developer Ian Bruce Eichner defaulted. Rather than sell the half-finished project into a depressed market, Deutsche will take possession.

> I especially like the somment " The concept that will stand the test of time"..... Impossible to suppress Schadenfreude while watching the clip..... :-)

> Besonders beeindruckend ist in diesem Zusammenhang der Schlußsatz "The concept that will stand the test of time"......... Zwecklos bei Ansicht des Clips nicht in Schadenfreude zu verfallen.... :-)

Deutsche will have to raise its bet with another $1 billion investment in the development, at the same time local operator Boyd Gaming has shelved a $5 billion project on the Strip. That looks like a risky double-down for a bank already exposed to MGM Mirage's cash-strapped $11 billion CityCenter project nearby.

> I´m not sure if they are already on the hook but when even Dubai World is late in raising as much as $3.5 billion for their $11.2 billion CityCenter project in Las Vegas it is not a very good sign.....MGM, Dubai Fall Behind on $3.5 Billion Loan for Las Vegas Plan . Watch the folling clip and it is no wonder why they are falling behind.....

> Ich bin mir nicht sicher ob die Deutsche Bank hier schon im "Feuer" steht. Wenn aber selbst Dubai als Hauptinvestor momentan Probleme hat Kredite zu bekommen ist dies sicher kein gutes Zeichen..... MGM, Dubai Fall Behind on $3.5 Billion Loan for Las Vegas Plan . Schaut Euch den Clip an und es ist wenig verwunderlich warum es Finanzierungsprobleme gibt.......

Project CityCenter - Las Vegas Luxury Condos

Even so, Deutsche's biggest hole may not be in Vegas, but in its reputation. It made the sucker's mistake of overlooking history, backing two racy developers with well-chronicled failures. It also was apparently blinded by the market's former momentum. In New York, it expected skyscraper rents to soar by 75%. In Las Vegas, it seems to have overestimated growth prospects and Sin City's resilience to a slowing U.S. economy.

Deutsche might be forgiven for failing to anticipate the full extent of the credit crunch. It has nevertheless revealed two weak cards in its hand: its ability to assess both borrowers and risk.

So Many Deals, So Much Debt

Schadenfreude ! When the deal was announced in February ( see commercial property madness / numbers on the blackstone-eop manhatten sale ) i wondered back then what the hell Macklowe, Fortress & creditors were thinking.

Schadenfreude ! Als der Deal im Februar angekündigt worden ( siehe commercial property madness / numbers on the blackstone-eop manhatten sale ) habe ich mich schon damals gefragt was sich der Käufer und die Kreditgeber wohl denken mögen.

From the link in February

This article gives some good insight on the latest commercial property deals and shows very clear that "ordinary" people can´t understand what is going on. we are not smart enough to understand why you buy a portfolio at record (maybe peak) prices with a starting yield of 3% and including costs close to zero...... the only assumption that makes this deal work is that you double the rents? looks like this should be no problem because already 41 tenants in entire Manhattan pay the needed rent.......

Harry Macklowe, the New York developer, was flying high in February when he decided to buy a portfolio of prime Midtown Manhattan office towers for nearly $7 billion, using only $50 million of his own money.

Mr. Macklowe was already well represented in the Midtown market, where rents were rising at a staggering rate. His 2003 purchase of the General Motors Building on 59th Street and Fifth Avenue for $1.4 billion, though derided at the time as reckless, had been vindicated as the value of the building soared, enhancing Mr. Macklowe’s reputation as a visionary tycoon.

But as the crisis over subprime residential mortgages spills over into other real estate sectors, causing a severe tightening of credit, there is widespread talk in the industry that Mr. Macklowe is in deep trouble — so much so that he could lose control not only of the newly acquired portfolio but also of the G.M. Building and other properties that were used as collateral for short-term debt that must be repaid six months from now.

bigger/größer

Some real estate specialists say that the February acquisition of the seven Manhattan buildings — a deal consummated in just 10 business days —will be remembered not just as a feat of financial derring-do but also as a watershed that ended two years of frenzy in the commercial real estate market.

“If you’re looking for a poster child for what’s been going on, it could well be that deal,” said Mike Kirby, a principal of Green Street Advisors, a research company in Newport Beach, Calif., that specializes in real estate investment funds. “It had all the elements of the froth in the market — assets flipping left and right at ever-higher prices and excessive amounts of debt at ultracheap prices.”

> Macklowe marked the peak....

But in other signs of how the credit squeeze is affecting sales transactions, Tishman Speyer and Lehman Brothers recently postponed the completion of their $22 billion acquisition of Archstone-Smith, a real estate investment trust that owns interests in nearly 88,000 apartments, from late this month until early October. (Shareholders approved the sale yesterday.)

And a REIT that specializes in office buildings in Silicon Valley, Mission West Properties of Cupertino, Calif., said last week that its planned $1.8 billion acquisition by a private equity company had fallen through because the buyer’s lender had withdrawn from the transaction and no substitute lender could be found.

To be sure, the leasing market in many cities has been strong, nowhere more so than in Midtown, where landlords are now asking an average annual rent of more than $81 a square foot, a record, according to the brokerage firm CB Richard Ellis. Few large blocks of space are available. The default rate for commercial buildings has remained low.

But for several months, bond ratings analysts and others have warned that competition among commercial lenders has become so feverish that many are willing to finance 90 percent or more of the cost of the transaction based on overly optimistic projections that rents will continue to rise at a furious pace. In recent transactions, including Mr. Macklowe’s, the expected initial income from the buildings was less than 4 percent a year, with cash flow projected to rise significantly as leases expired and rents reached market levels.
But in the recent hot market, said Adrian Zuckerman, a real estate lawyer at Epstein Becker & Green, “people were not buying the income stream; they were buying the building for what they could sell it for in a year or two years.”

> Too bad that he bought at this "discount" prices.....

> Dumm nur das er zu diesen Schnäppchenpreisen zugelangt hat.....

The purchase price worked out to an average of $1,142 a square foot, the highest ever for a single portfolio..... Only one building, 666 Fifth Avenue, has traded for a heftier price: $1,200.

The Blackstone Group, the private equity company that recently went public, played on an even bigger scale. It bought Equity Office Properties, the nation’s largest office landlord, for $39 billion in February, and simultaneously began to dismantle it.

> EOP/Blackstone takeover

Without even taking possession of the buildings, Blackstone sold most of Equity Office’s portfolio in Manhattan to Mr. Macklowe in the transaction that is now raising questions. (The portfolio originally included the office portion of an eighth building, but that was later dropped from the deal.)

The problem for Mr. Macklowe is that much of the debt — $3.4 billion, according to Commercial Mortgage Alert, a weekly trade publication — is in the form of a short-term investment known as a bridge loan or preferred equity that must be repaid in February. Of that amount, about $900 million came from the hedge fund Fortress Investment Group, with the rest supplied by Deutsche Bank, Mr. Macklowe’s longtime lender. Mr. Macklowe pledged the G.M. Building and other assets as collateral.

Disclosure: Still short REITs / IYR

A Warning on Risk in Commercial Mortgages / NYT

not a pretty picture....especially when the economy is slowing down and is close to a recession

kein schöner anblick...besonders wenn man bedenkt das die wirtschaft gearde in die rezession rutsch.

Spurred by the collapse of the subprime mortgage market, the leading bond rating agencies are beginning to crack down on what they see as risky lending practices in commercial real estate.

Low interest rates and an abundance of investment capital have led to heady times for buyers and sellers of office buildings, hotels and other income-producing property. Buildings have traded at record prices and loan terms have become increasingly generous, with many buyers putting little or no equity into the deals.

Like residential loans, commercial mortgages are pooled and packaged into bonds that are sliced up into portions carrying different degrees of risk. According to Moody’s, there were $769.6 billion in commercial mortgage-backed securities at the end of last year, representing 26.1 percent of all outstanding commercial mortgages, including apartment buildings.

The agencies that rate these bonds on behalf of bond dealers have issued warnings in the past, but last month they sounded a new note of urgency, saying for the first time that they would adjust their ratings to reflect their concerns.

“Underwriting has gotten so frothy that we have to take a stand,” said Jim Duca, a group managing director at Moody’s Investors Service. “The industry was heading to Niagara Falls.”

The readjustment is occurring just as signs are emerging that the office market is slowing down nationwide. Though rents continued to rise in the first quarter of this year, the average vacancy rate for 58 metropolitan markets across the country rose to 12.6 percent from 12.5 percent, the first increase for any quarter since 2004....

Cautioning that “a few months don’t represent a trend,” Mr. Steir said real estate was a cyclical business. “The key to success so far has been to be the high bidder on everything available,” he said. “At some point, that strategy stops working.”....

Standard & Poor’s said that in the first quarter of this year, the delinquency rate for such bonds fell to its lowest level since its delinquency index was created in 1999.

But many of the loans issued recently could result in problems down the road, the bond analysts said. As was the case in the overheated residential mortgage market, many loans for commercial transactions are interest-only for the first 10 years, with huge balloon payments at the end of the term. The agencies say lenders are not requiring landlords to set aside adequate reserves to cover taxes, insurance and other costs if things go wrong and are accepting projections for rent growth that may be too optimistic.

Fitch predicted a 15 percent increase in defaults of loans that are being written now.

Space in Manhattan that was leased a while back for an annual rent of $40 a square foot may reasonably be said to be worth $70 a square foot in today’s market, said Mr. Duca at Moody’s Investors Service. But he said some lenders were now claiming that space that was recently leased for $70 a square foot was actually worth $90 a square foot. “That’s how aggressive it is now,” he said. “We’re saying the lending environment doesn’t make any sense.”


In one spectacular example of a hastily concluded deal, Macklowe Properties, a Manhattan company, took only 10 business days to complete its $7.25 billion purchase of eight Midtown office buildings that had belonged to Equity Office Properties before Equity was sold to the Blackstone Group in what was then the largest leveraged buyout ever. The average annual rent for the buildings is $55 to $59 a square foot, but the deal was underwritten with projections of future rents of $100 a square foot or more.

>here are is one more detail of the deal!
>hier noch etwas um die zahl oben besser einzuordnen

Last year, 41 tenants in Manhattan agreed to pay that much or more, .(41 tenants in entire manhattan?! what a conservative concept......./ 41 mieter in gesamt manhattan..... klingt nach einem soliden concept)

http://tinyurl.com/25dbqf


While the agencies are just beginning to carry out their new credit-tightening standards, their warnings are already having repercussions in the bond market. Investors are demanding higher rates of return, making the bonds costlier for the dealers, said Rob Brennan, the global head of real estate financing for Credit Suisse. “The fact is that the marketplace forces the change immediately,” he said.

Last week, a new $4.2 billion commercial-mortgage-backed security offered by GE Capital had to be restructured after investors complained that the originators of several of the loans had relied too heavily on projected income increases from the buildings, according to Commercial Mortgage Alert, a weekly trade newsletter. Five loans totaling $226.7 million were removed from the offering, and the investment-grade portion of another loan was further trimmed by $50 million, the newsletter reported. Mr. Brennan said the proceeds from the bond could be reduced by as much as $8 million because the bonds with high yields sell for much less than the top-rated bonds.


Most of the loans removed from the offering were originated by Deutsche Bank, which also provided $6 billion in debt financing for the purchase by Macklowe Properties of nearly all the Manhattan portfolio of Equity Office Properties. .....

disclosure: short reit index