Capmark Bankruptcy Template

From Harold Brubaker at the Philly Enquirer:

Capmark, which has 585 of its 1,000 employees in Horsham, relied heavily on selling loans it had made into the secondary market. When that froze and property values fell, the company got stuck owing more to its own lenders than its loans were worth.

“It’s a template that you will see multiply itself many times over over the next three years,” said Matthew McManus, chairman of NAI BlueStone Real Estate Capital, a real estate investment bank in Philadelphia.

The problem for the industry is that between now and 2013, more than $2 trillion in commercial mortgages, which typically have a five- to 10-year term, will need to be refinanced, according to a July report by Richard Parkus, head of commercial mortgage-backed securities at Deutsche Bank AG. It is not turmoil in the capital markets that is causing the bottleneck, but rather the fact that properties are not worth enough to retire the old debt in a refinancing, Parkus said.

From Craig Guttenplan at Credit Sights:

commercial real estate is a ticking time bomb waiting to explode all over the banks, insurance companies, pension funds, hedge funds, opportunity funds, private real estate owners, and basically anyone who bought or lent against commercial property with aggressive leverage at the height of the market. But, as they say, with times of great stress come great opportunities.

The media has focused for the most part on the likely losers of the upcoming commercial property bust but relatively little attention has been paid to the likely winners. In our view, the REIT industry will be one of the biggest beneficiaries of the commercial property crisis.

From Seeking Alpha:

The most recent results of the Moody’s/REAL Commercial Property Index continues to suggest that the nation’s commercial real estate markets are now firmly experiencing a tremendous downturn with prices plummeting a whopping 32.80% on a year-over-year basis and a stunning 40.62% since the peak set in October 2007.

The word “cataclysm” has been used. Meanwhile:

NEW YORK, Oct 21 (Reuters) – Investors requested $2.1 billion in loans in the fourth round of a Federal Reserve program to boost lending in the commercial real estate market, the Federal Reserve Bank of New York said on its website on Wednesday.

Loan requests under the Fed’s October Term Asset-Backed Securities Loan Facility, known as TALF, were up from the $1.4 billion of loan requests under the “Legacy” CMBS TALF program in September.

No new loans were requested under the Fed’s new issue CMBS TALF program.

From Kerry Grace Benn at the WSJ:

Financial stocks fell Monday as several factors, including reports that Bank of America Corp. hit a snag in repaying Troubled Asset Relief Program funds and talk of legislation set to be introduced in Congress, weighed on shares…

Regional bank stocks also were hurt as investors took time to process earnings and focus on commercial real-estate problems that regional banks will face, FBR Capital Markets analyst Scott Valentin said. Downgrades on several regional banks from Rochdale Securities’ Dick Bove also hurt the sector.

Mr. Valentin said there’s some talk that the regulation Congress is considering would put investors in more jeopardy in case of a bank failure. The bill to be introduced would make it easier for the U.S. government to seize control of troubled financial institutions that are considered too big to be allowed to fail, The New York Times reported late Sunday. The legislation would make it easier for the government to throw out the financial company’s management, wipe out shareholders and change the terms of existing loans held by the institution, the report said.

Does this spell the end of irrational exuberance?