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HomeFull Throttle
Posted by Larry Doyle on May 27th, 2009 11:28 AM |
To say that we are in the economic fight of our lives would be a gross understatement. While we are feeding ammo into all our weaponry on the main deck, are we remiss in keeping a close eye on what is happening “in the engine room”?
Let’s go into the control room on the main deck and scope things out. On one wing, we see the plans to combat the problems in the commercial real estate market have suffered a setback. Bloomberg reconnaissance provides details: Top Rated Commercial Mortgage Debt May Face Cuts:
The highest-graded bonds backed by commercial mortgages may be cut by Standard & Poor’s, potentially rendering the securities ineligible for a $1 trillion U.S. program to jumpstart lending.
As much as 90 percent of so-called super senior commercial- mortgage backed bonds sold in 2007 may be affected as the ratings firm changes how it assesses the debt, New York-based S&P said today in a report. About 25 percent of the bonds sold in 2005, and 60 percent of those sold in 2006 may be cut.
“We believe these transactions are characterized by increasingly more aggressive underwriting than prior vintages,” S&P said. “Furthermore, recent-vintage CMBS, particularly those issued since 2006, were originated during a time of peak rents and values,” and may be more affected by falling rents.
Cutting the ratings would exclude the securities from the Federal Reserve’s program to bolster credit markets by financing the purchase of older commercial real-estate debt. To be eligible for the program, collateral can’t carry a rating below AAA from any rating firm.
This development is a MAJOR setback in our economic battle. An overhang of office space and underperforming real estate properties will be a significant drag not only on earnings for holders of the loans but also on the economies where these properties are located. (more…)
Hancock Tower Cut In Half
Posted by Larry Doyle on April 1st, 2009 2:59 PM |
Many people may not fully appreciate the dynamics of the “shadow banking system.” Credit for consumers, small business, and corporations is still largely a function of bank lending. Many parts of our economy are railing on banks for not providing more credit. The banks do deserve plenty of blame for not allocating more credit and at reasonable rates (primarily consumer credit). That said, the “shadow banking system” (funds generated by securitizing assets) has largely shut down.
The stream of credit from the “shadow banking system” represented approximately 40% of the credit injected into our economy. While plenty of people clearly feel this lack of credit at the individual level, what does it mean at the corporate level?
Let’s review a major real estate transaction. Bloomberg reports, Hancock Tower Sells at About Half Price to Normandy. This tower is a first class office building in a prime Boston location. (more…)
