Economic Update – CRE Refi Problems Loom
- Apr 16, 2009
“Forbearance into foreclosures” was how the Wall Street Journal characterized prospects for the commercial mortgage-backed securities market over the coming years, when many billions of loans underlying CMBS will come due–$22 billion of which will be this year and next. For now, banks have been extending maturities in hopes of some kind of recovery in underlying asset values. But how long they will keep doing that is an uncertainty. It isn’t just a U.S. problem, either. Rating agency Moody’s Investors Service said this week that it might cut ratings for ¥1.4 trillion ($14 billion) worth of Japanese CMBS. Roughly ¥1.72 trillion in Japanese CMBS will mature this year and in 2010, and refinancing is just as much a problem for in Japan as in the United States. CMBS is just one part of the nagging (or looming) refinance problem for commercial real estate. Can TALF, at least as far as the U.S. industry is concerned, really really delay or ameliorate a possible wave commercial real estate defaults? Like for any large economic question, “maybe” seems like the most reasonable answer. “TALF has the ability to help remove legacy debt from lender balance sheets which should theoretically open up more capital for commercial property lending,” Dan Fasulo, managing director at Real Capital Analytics, told CPN. “Yet the program will be hindered due to the short-term nature of the debt that the Treasury will provide investors, two or three years. Treasury will have to provide at least five-year terms on the acquisition loans to get investors to participate en masse.” Otherwise, it’s been a week of tepid optimism, first with President Barack Obama and Fed Chairman Ben Bernanke saying that the economy isn’t getting worse as fast as it was only a month or two ago, and later from a Federal Reserve survey, the monthly Beige Book, which was released Wednesday. In the housing sector, the report said, “there were some signs that conditions may be stabilizing,” though “depressed” is the word the report used to describe the overall condition of the market. Still, the Beige Book noted that such diverse factors as tax credits, lower mortgage rates and lower prices have attracted residential buyers in such diverse places as the Atlanta, Kansas City, Minneapolis, Richmond, and San Francisco districts. In an interview Wednesday on Bloomberg TV, real estate mogul Sam Zell called his foray away from real estate into the news business “a mistake,” and added that he was formerly “too optimistic” about the newspaper business. Then again, a lot of major business deals in the bubble years before 2008 could be characterized that way. The sale of the Chicago Cubs, however, is still supposed to go through. The Ricketts family, whose fortune is associated with TD Ameritrade Holding Corp., is slated to buy the club for $900 million in a deal to be finalized early this summer, unless financing proves more sticky than expected. A storied piece of Chicago real estate–namely Wrigley Field–would trade hands at the same time, if the deal goes through. On Wednesday, Wall Street recovered some of the ground it gave up early in the week, tepidly, with the Dow Jones Industrial Average gaining 109.44 points, or 1.38 percent. The S&P 500 was up 1.25 percent and the Nasdaq eked out a 0.07 percent gain.