Commercial Mortgage Default: Bought for $1.3b John Hancock Building in Boston Expected to Fetch $700mm or Less at Foreclosure Auction

The John Hancock Building will be sold at auction today after the owner, Broadway Partners, defaulted on its mortgage debt.

 

Broadway just bought the building in ’06 for $1.3b but can’t secure a refi so the lender, acting very quickly, is dumping the behemoth on the Boston commercial real estate market.

 

They might get $700mm for it, they might get less. In-any-case this is a sign of incredible stress in the commercial real estate industry.

 

You can read more at boston.com.  

UPDATE: The tower sold for a ~$660mm to a partnership between Normandy Real Estate & 5 Mile Capital. Details in The Wall Street Journal.

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Commercial Mortgage / Commercial Real Estate Outlook; I think I’m Going to be Sick

Caution: Do not read this report if you are looking for good news, have a heart condition or experience motion sickness.

 

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Commercial Real Estate – Not Nearly as Bad as the ‘80s in Ft. Worth

George Roddy, a local real estate guy in the Ft. Worth Texas area, has run the numbers and thinks it’s crazy to compare this downturn with the one commercial property had in the 1980s.

 

The Ft. Worth Business Press covered his speech to the Society of Commercial Realtors event and has the story.

 

Roddy is depressed but claims this is not a depression. He points to the fact that only 80 properties in his county (Tarrant) went back to lenders last year (’08) compared to ~730 in 1989 in the same county.

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Another Commercial Mortgage Default; Simon Properties Fails to Refi Debt on The Mall at the Source

 

And so on and on it goes.

 

The Mall at the Source in Westbury, NY has defaulted on its mortgage. In 1999 they borrowed about $120mm. The loan was interest only, due and payable in 10 years. The 10 years is up but the property value and the income the mall produces is down.

 

 

 

They used to have some great stores in that mall; Circuit City (bankrupt), Steve & Berry’s (out of business), Fortunuff (belly-up). But now-a-days they feature a military surplus store, a dollar store, a 99 cent store (that does considerably more business than the dollar store) and their big anchor tenant is a store that sells gold by the foot and martial arts equipment. Just kidding. Saks and Jones NY are still hanging in there along with some other decent names…for now.

 

But the drop in income has caused a drop in the value of the real estate and there is not enough equity or positive cash flow there to justify a loan.

 

LNR Properties, the loan servicing firm, has the loan marked “non-performing, mature balloon” which is mortgage company code for “no chance of ever being repaid”

 

The giant retail REIT, Simon Properties, is the unfortunate owner of The Mall at the Source. Lucky for them there is a Bath & Body Works in the mall, ‘cause their going to take a bath on this one.

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Bloomberg: Commercial Real Estate Will Come Back Faster in BRIC Nations

Bloomberg reporter Sumit Sharma, speculates that the BRIC nations (Brazil, Russia, India and China) will recover from the commercial real estate slump faster than the US and Europe will. We will see…

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Commercial Mortgage Securities; Stock Down / Bonds Up

Market Watch points out that commercial mortgage stocks led the financial sector lower on Friday (3/27/09) while The Wall Street Journal reports that commercial mortgage bonds were big winners this week.

 

This is what we investment banker types call an inverse correlation.

 

Some inverse correlations are fixed. For instance interest rates and bond prices; when bond rates go up bond prices always go down, always, it can not be otherwise. Other inverse relationships are anomalies that may or may not happen with any regularity.

 

Commercial real estate stocks falling while commercial real estate bonds rise is an example of an anomaly. The inverse correlation does not have much to do with the securities that are fluctuating; it’s caused by other market and economic factors.

 

The point is don’t try and trade this trend unless you know what is causing it and when it will stop.

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Commercial Mortgage Loan Exposure; 1400 Banks at Risk

We have reported on this blog that banks and thrifts hold the largest portion of commercial mortgages; upwards of 50%.

 

It stands to reason that with the weakling commercial mortgage market will come a weakening of the banks that hold imprudent amounts.

 

Just how many banks is that? The number is over 1400 nationwide. More than 1400 banks hold 300% or more of their tier one capital in commercial mortgage loans. That’s a-lot of banks and that’s a-lot of capital.

 

Bank regulators consider anything over 299% “excessive” and, so do we.

 

As the economy gets worse vacancy rates will climb, rents will fall, values will fall and many mortgages will go bust. Some of those bankers-gone-wild banks will fail. Exactly how many remains to be seen.

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Soros: Commercial Real Estate Prices to Plunge

George Soros predicts 30% drop in commercial real estate prices.

 

…Must be short REITs in his stock portfolio.

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