Credit Downturn Hits U.S. Malls

Credit Downturn Hits U.S. Malls

Centro Properties' Woes Underscore the State Of Commercial Market

By KEMBA J. DUNHAM and JENNIFER S. FORSYTH

The credit crunch triggered by the downturn in the housing market is creating problems in commercial real estate, driving down prices of office buildings, shopping malls and apartment complexes, and leaving some owners scrambling for cash.

One victim is Centro Properties Group, the fifth-largest owner of shopping centers in the U.S. The Australian real-estate company saw its share price fall by 90% in two days last week as it struggled to refinance short-term debt it took on to fund its $6.2 billion acquisition of New Plan Excel, one of the biggest owners of strip malls in the U.S.

Centro had planned to pay off the short-term loans by selling long-term debt via the commercial mortgage-backed securities market, but the lack of buyers forced it to get a two-month extension from its creditors. Commercial mortgage-backed securities, or CMBS, are pools of loans that are sliced up and sold to investors as bonds.

Residential mortgages are packaged and resold much the same way, but so far the CMBS market hasn't had any significant problem with defaults.

In another high-profile case, the clock is ticking for Harry Macklowe, the New York developer, who is struggling to raise financing by February to replace $7.1 billion in short-term money he borrowed to finance his heavily leveraged acquisition of seven Manhattan office buildings this year.

The predicament facing Centro, Mr. Macklowe and numerous others underscores the state of the once-unflappable commercial real-estate market. For the past few months, the sector has been in a state of near-paralysis, as financing has nearly dried up. The number of major properties sold is down by half, and many worry that the market will continue to deteriorate as property sales remain slow, prices continue to drop and deals keep falling apart.

"Where we're really in a fog is on the capital markets side," said Michael Giliberto, a managing director of J.P. Morgan Chase & Co., on a conference call last week about the state of the commercial real-estate market.

The CMBS market was the engine that drove the commercial real-estate boom. Over the past few years, the issuance of CMBS allowed banks to get rid of the risk on their books, lend with cheaper rates and looser terms and that made it easy for private-equity firms to do huge real-estate deals.

Between 2002 and 2007, CMBS issuance rose to an estimated $225 billion from $52 billion, according to Commercial Mortgage Alert, a trade publication that compiles its own statistics.

Real-estate investors aren't the only ones feeling the pain. Many big banks issued short-term loans to buyers and planned to sell them off later, much the way they do with loans made to private-equity buyout shops. But the banks have gotten stuck with an estimated $65 billion in fixed- and floating-rate loans on their books, according to J.P. Morgan. Some of the largest issuers have been Lehman Brothers Holdings Inc., Credit Suisse Group and Wachovia Corp.

Lehman has said that about half of the $79 billion in mortgage debt it was holding at year-end is CMBS-related. Wachovia and Credit Suisse declined to comment.

Prices, however, haven't appeared to fall, though much like residential real estate, there is often a period where buyers stop buying but sellers refuse to lower prices.

There is "cognitive dissonance" between buyers and sellers, says Dennis Russo, a real-estate attorney for Herrick Feinstein. "There's a period of time in which the seller cannot psychologically move his price down. They haven't accepted what's happening in the market."

According to Real Capital Analytics, sales of significant office properties plummeted to $7 billion in November, a 55% drop compared with November 2006. So few deals are getting done that many market experts say they don't know how to put a value on many buildings right now -- but almost everyone is in agreement that the valuations are dropping.

Often, deals aren't done because financing either isn't available or is so expensive that buyers are insisting on price reductions that sellers won't accept.

For example, Ackerman & Co., a brokerage, just pulled a suburban Atlanta office building off the market after bids came in below estimates. Developer Michael Reschke has so far been unable to get financing for a J.W. Marriott planned down the street from the Chicago Board of Trade, despite his willingness to put more cash into the deal than originally planned.

The commercial real-estate market was still soaring in early 2007, long past the peak of the residential real estate market. But a combination of frenzied deal making, high prices and credit worries combined to sink the sector.

First, private-equity firm Blackstone Group LP made its record-breaking $23 billion purchase of Sam Zell's Equity Office Property Trust, the nation's biggest owner of office buildings. Then it turned around and sold off many of the properties at even higher prices. The frenzied deal-making surrounding the EOP portfolio came to symbolize frothy valuations, which triggered a backlash in the lending markets.

In April, Moody's Investors Service said lenders' underwriting standards had become too lax during the run up in prices. The warning scared investors and prompted bankers to raise interest rates and required borrowers to put in more of their own money into deals.

The subprime-mortgage downturn hit last summer, prompting fears that the problems plaguing the residential market would spillover to the commercial side. Banks were caught holding debt on their books, making them less willing to lend.

Centro Property got caught in the crunch. Its billion-dollar acquisition of New Plan Excel, a U.S. shopping center real-estate investment trust, came in February -- a moment many experts believe was the height of the commercial market.

Now its lenders, primarily Australian banks, are pressuring Centro to sell assets before they will consider refinancing.

"Certainly the private-equity players played that game for a time, and they could have been caught in a similar situation but they were very quick to turn around and sell their assets," said Paul Adornato, a real-estate analyst with BMO Capital Markets Corp. Centro's chief executive, Andrew Scott, didn't return calls for comment.

Credit was so plentiful when Mr. Macklowe purchased his Manhattan office buildings from Blackstone, he only needed to put in $50 million of equity to secure $7.1 billion in debt, which included a bridge loan and the senior mortgage, people familiar with the deal say.

He is now looking for an equity partner, people said. A spokesman for Mr. Macklowe declined to comment.

tag: Credit Crunch, CMBS, ABS

Che facciamo?

Il popolo delle libertà vuole un partito unico? Certo: qualunque sia il partito che si vota al momento, si vuole votare per il leader che possa costruire una rappresentanza unitaria del centrodestra, chiunque sia tale leader .
Leggere DestraLab per credere. A destra non si vuole la rivoluzione e non sono certo s'inseguano "socialità" d'altri tempi : si vuole soprattutto un ampio scudo che impedisca ai politici collettivisti, di destra e sinistra, d'impicciarsi degli affari e delle vite di famiglie ed individui e si vuole un leader che incarni e difenda soprattutto questo.

clipped from www.destralab.it

Gli elettori nei sondaggi rispondono sbrigativamente che intendono votare “per Berlusconi”… Ma i sondaggi suggeriscono che vincerà la competizione chi saprà proporre un’immagine il più possibile unitaria…

Quello che salta all’occhio

mi sembra sia la risposta alla domanda è meglio che i partiti si sciolgano per formare un solo, vero e proprio partito unico, dove si nota che il 72% degli elettori dell’Udc e il 62% di quelli di An rispondono in modo affermativo. Sembra che gli elettori del centrodestra ambiscono da tempo ad un rinnovamento nel quadro politico e nella loro coalizione in particolare. Ciò che i votanti per il centrodestra paiono volere soprattutto è la creazione di forze ampie, unitarie e la conseguente semplificazione del quadro politico. A quanto pare Casini e Fini potrebbero dedicare alla cosa un surplus di riflession

HT: DestraLab
ps: mi associo alla dedica e alla “creatura“.

Accept Israel as the Jewish state? | Jerusalem Post

Accept Israel as the Jewish state? | Jerusalem Post: "Saeb Erekat, head of the PLO Negotiations Department: 'The Palestinians will never acknowledge Israel's Jewish identity. … There is no country in the world where religious and national identities are intertwined.'
Erekat's generalization is both curious and revealing. Not only do 56 states and the PLO belong to the Organization of the Islamic Conference, but most of them, including the PLO, make the sharia (Islamic law) their main or only source of legislation. Saudi Arabia even requires that every subject be a Muslim. Further, the religious-national nexus extends well beyond Muslim countries. Argentinean law, Jeff Jacoby of the Boston Globe points out, 'mandates government support for the Roman Catholic faith. Queen Elizabeth II is the supreme governor of the Church of England. In the Himalayan kingdom of Bhutan, the constitution proclaims Buddhism the nation's 'spiritual heritage.' … 'The prevailing religion in Greece,' declares Section II of the Greek Constitution, 'is that of the Eastern Orthodox Church of Christ'.' SO, WHY the mock-principled refusal to recognize Israel as a Jewish state? Perhaps because the PLO still intends to eliminate Israel as a Jewish state."

Ringraziamenti scoppiettanti

Da Hurricane_53:

"I mortai palestinesi sono entrati in azione colpendo a ripetizione le case del kibbutz. Almeno otto ordigni sono esplosi nel villaggio, altrettanti sono caduti nei campi vicini. Intanto, dopo sei mesi e' stato riaperto il valico di Rafah.(Il lancio di mortai è stato il ringraziamento!) Oggi 200 palestinesi hanno attraversato la frontiera."

Ringraziamo il cielo che certa stampa italiana non abbia neppure riportato la notizia, altrimenti sarebbe suonata come "Israele sfrutta 200 lavoratori, riapre un varco ed esplodono ordigni" o qualcosa di altrettanto lucido ed oggettivo.
Ringraziamo anche la mancata difesa dell'esercito israeliano: se avesse reagito colpendo i siti di lancio, magari uccidendo gli artificieri, al titolo precedente si sarebbe sostituito un "Israele bombarda Gaza, strage di civili"

Pure il nome...

Sono felicissimo che anche il popolo della libertà, nel suo piccolo, si mobiliti. Le manifestazioni di vitalità del popolo di centrodestra mi rendono soltanto felice.
Il Post scriptum, invece, mi lascia un pochino d'amaro in bocca: la parola "partito" sarà demodé, ma "popolo" ha davvero un brutto sapore.


HT:KrilliX

Florida Weighs Steps Needed To Lift Freeze on State Fund - WSJ.com

Florida Weighs Steps Needed To Lift Freeze on State Fund - WSJ.com

A day after Florida froze withdrawals from its government investment fund, an advisory committee to the state board met with some of the fund's investors late Friday to determine how it can lift the moratorium without sparking a run on the $15 billion fund.

The two-hour meeting ended without reaching a resolution as to how to re-open the fund. Many options were considered, even the liquidation of the fund, though it isn't clear how seriously that was taken. No agreement was reached, according to a spokesman for Florida's State Board of Administration.

Florida's State Board imposed the freeze on withdrawals from its Local Government Investment Pool Thursday after the fund's investors, nervous local governments and school districts, yanked $10 billion out over two weeks on concerns that money was invested in risky mortgage-related securities.

"We knew there was trouble," said Sharon Bock, clerk and comptroller for Palm Beach County, who had $60 million in the investment pool in September but withdrew the last of it Wednesday. "We saw that several investments were backed by mortgage-backed securities."

Florida isn't the only fund to be hit. Standard & Poor's in October put a fund in King County, Wash., on watch for downgrade because of the $4.1 billion county fund's investments in three so-called structured investment vehicles, or SIVs. These are commonly bank affiliates that raise money by selling short-term debt and using it to buy higher-yielding long-term securities.

In Montana, the Board of Investments has been hit with $247 million in withdrawals this week from a $2.5 billion fund called the Short Term Investment Pool following reports about Florida's problems.

The spread of subprime's influence into the state-run world shows the mortgage crisis is hitting investors once thought to be removed from the damage. While these funds aren't believed to have bought any of the riskiest paper scooped up by hedge funds and banks, they have nonetheless suffered collateral damage as even the highest-rated mortgage-backed securities have become illiquid, putting short-term funds in a bind they never saw coming. "People believed they were doing things prudently, but some tried to get a little more yield and thought why not?" Richard Larkin, a municipal bond expert at JB Hanauer & Co. said. "Everyone believed A1-rated commercial paper was safe. They're realizing that isn't enough."

The Florida investment pool, one of around 100 or so nationwide, is like a money-market fund that was supposed to provide a safe, liquid vehicle for investors to park cash used temporarily. The money in the funds is generally used for payroll and other government regular operations. Moody's Investors Service has begun surveying all state investment pools to see whether they have exposure to these instruments and if there have been any withdrawals similar to Florida, according to Bob Kurtter, managing director in public finance at the rating agency. "The financial markets are complex and rapidly developing," he said. "Sometimes new instruments are developed that fall within the bounds of existing investment guidelines, but may pose risks that weren't anticipated at the time."

Moody's knows of problems in Florida and similar but smaller issues in Montana. The rating agency has also been talking with a county on the East Coast that recently took a loss from an investment its cash pool made in a SIV, Mr. Kurtter said. The information is confidential, he added. "We have been reassured that problem is under control and manageable," he said. "They are seeking some recourse against whoever sold it to them.

As word spread of Florida's mass withdrawals and then the suspension, other investment pools around the country took steps to reassure their investors.

"The purpose of this letter is to assure you that Georgia Fund 1 is not invested in, nor has ever been invested in, the types of subprime-backed investments that are generating such losses," W. Daniel Ebersole, director of Georgia's Office of Treasury and Fiscal Services, wrote to investors on Wednesday.

Mr. Ebersole said he drafted the letter after a "couple of enquiries" from Georgia investors who had been spooked after hearing about the Florida news.

Florida's predicament is the latest example of investors stretching in search of higher yields without realizing the full risks they were taking on, public finance experts said

One high-profile example of this was Orange County, Calif., in 1994, which, like Florida, ran a short-term investment pool for local governments and school boards in the area.

After Orange County went bankrupt, many states and counties tightened guidelines to ensure investments were short term and had top ratings from a leading agency, Mr. Larkin said.

But investment vehicles, like SIVs, were then developed that had top ratings, but had riskier underlying assets. That allowed state and county investment pools to stay within their stricter guidelines, but invest in higher yielding assets, Mr. Larkin and others say.

"There's a pattern here," he added. "This seems to happen every five to ten years."

Moody's May Cut Ratings on $105 Billion of SIVs as Values Sink

BN 00:32 Moody's May Cut Ratings on $105 Billion of SIVs as Values Sink


By Shannon D. Harrington
Dec. 3 (Bloomberg) -- Moody's Investors Service is preparing the biggest credit rating cuts since subprime mortgages contaminated the bond market, foreshadowing losses for investments that pay Florida teachers and money market funds.
Moody's may lower ratings on $105 billion of debt sold by structured investment vehicles after the net asset values of 20 SIVs sponsored by banks including New York-based Citigroup Inc.
and ING Groep NV declined to 55 percent from 71 percent a month ago, Moody's said in a statement Nov. 30. The assets were valued at 102 percent in June.
``The assets that SIVs hold are continuing to decline in value,'' said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group, Switzerland's second-biggest bank by assets. ``As they do that it's creating more problems for the holders.''
School districts, towns and cities across Florida were denied access to their money after the State Board of Administration halted withdrawals from the Local Government Investment Pool on Nov. 29 to stem a run on the fund, which had $2 billion in SIVs and other debt tainted by the subprime collapse, state records show.
Legg Mason Inc., based in Baltimore, said two money market funds run by its Western Asset Management Co. unit had almost 1 percent of their assets in an SIV sponsored by Amsterdam-based ING, the biggest Dutch financial-services company.

Super-SIV Fund

Downgrades would make it more difficult for SIVs, companies that use short-term debt to invest in higher-yielding assets, to obtain financing. Three of the funds defaulted in the past four
months. Treasury Secretary Henry Paulson is working with Citigroup, New York-based JPMorgan Chase & Co. and Bank of America Corp. in Charlotte, North Carolina, to form an $80 billion fund to help bail them out.
Moody's cut the ratings $14 billion of SIV debt last week, mostly capital notes that rank below commercial paper and medium-term notes. The New York-based company also placed $105
billion on review for a downgrade and confirmed the rankings on $11 billion.
Citigroup SIVs with $64.9 billion of debt were reduced or put on review. Bank of Montreal's $19 billion SIV had its ratings cut or placed on review. Some of the evaluations will be
completed within a week, Moody's said.

`Material Declines'


``In recent weeks, Moody's has observed material declines in market value across most asset classes in SIV portfolios,'' the ratings company said in the statement.
Values on Citigroup's six SIVs under scrutiny fell as low as 56 percent, Moody's said. Orion Finance Corp., managed by Eiger Capital Corp., has a net asset value of 54 percent, down
from 61 percent on Sept. 5. Eiger is sponsored by ING.
SIVs had about $320 billion of assets as recently as October, according to the ratings companies. Investors are concerned that the funds will sell holdings at fire-sale prices
if they are forced to liquidate, further roiling credit markets that seized up in July and August.
The net asset value represents the amount that would be left over for investors if a SIV was forced to sell holdings and repay debt. SIV assets on average are 38 percent financial institution debt, 16 percent asset-backed securities and 12 percent collateralized debt obligations, Moody's said.
``We need to see the purging process result in a cleaning up of the bad debt,'' said Scott MacDonald, head of research at Aladdin Capital Management LLC in Stamford, Connecticut, which has $21.5 billion in assets. ``This is a painful, but necessary healing process.''

Florida Rejection

The SIV debt Moody's placed on review includes the top-ranked notes held by money market funds and local government investment pools.
A new advisory panel of Florida school and local government officials said on Nov. 30 they won't accept a return of less than 100 percent of their investment from the Local Government Investment Pool. The agency that runs the fund had proposed surveying participants to see if they would accept as little as 90 cents on the dollar of their deposits in order to access their money this month.
The two money funds run by Legg Mason owned debt of Orion. Moody's last week cut Orion's top P1 commercial paper rating to ``Not Prime,'' and its AAA medium-term note program was slashed to Baa3, the lowest investment grade. Commercial paper is due in 270 days or less.
Citigroup, the largest U.S. bank by assets, provided $7.6 billion of emergency financing to its SIVs last month. London- based HSBC Holdings Plc said last week it will take on $45 billion of assets from the two SIVs it manages. SIVs set up by Dusseldorf-based lender IKB Deutsche Industriebank AG and London-based Cheyne Capital Management Ltd. defaulted in October.

--With reporting by Pierre Paulden and Bryan Keogh in New York and Christopher Condon and Sree Vidya Bhaktavatsalam in Boston.

Source: Bloomberg.com

Abu Dhabi non è come i giapponesi e gli hedgies

Dall' OpinionJournal: "Sovereign Impunity There's a difference between Abu Dhabi now and Japan in the 1980s.

They've been around for decades, but their recent growth has been explosive. They often operate outside any regulatory framework, while their investments are often opaque and their intentions have been questioned by governments around the world. Their assets are now measured in trillions of dollars, up from the 'mere' billions they controlled as recently as 1990.
But wait--are these 'sovereign wealth funds,' or hedge funds? Actually, the description applies to both. And in both cases, it is easy to overstate the dangers in their recent growth. That said, there are important differences between the private pools of capital known as hedge funds and the public pools that have come to be called sovereign wealth funds."

[...]

Sovereign wealth funds are not voluntary aggregations of capital earned by risk taking. They represent the concentration of wealth that results from government, rather than private, ownership of natural resources, especially oil. It's no accident the Abu Dhabi fund was formed in the first petrodollar era in the 1970s, and that it is booming again amid the current sequel. These funds owe much of their current size from bad U.S. monetary policy. We were nearly as "dependent on foreign oil" in the 1980s and 1990s as we are today. But with a responsible Federal Reserve and strong dollar, there was no boom in petrodollars.

[...]

Only in this decade, amid the Fed's dollar abdication, have we again seen the boom in commodity prices that is enriching Russia, the Arab kingdoms, Venezuela (see below) and other dubious corners of the globe. Our own monetary mistakes have made these funds richer than they would be under normal market conditions. The response should not be to restrict their investment, but to start protecting the value of the dollar so that the price of oil falls back down to where it reflects supply and demand, not a cheapening U.S. currency.

Then these funds will become less important as a source of global capital. In the meantime, "sovereign" money that invests in America should be welcome as long as it plays by American rules and doesn't threaten our national security.