City sees more CMBS property value cuts
October 13, 2009 05:30PM By Adam Pincus
As rating agencies have slashed the value of bonds tied to securitized commercial real estate loans nationwide, some loan servicers are taking a harder look at the value of their assets and finding they are worth a lot less.
Loan servicers reported more appraisal reductions for New York City properties last month than in the preceding eight months combined, data from mortgage tracking firm Trepp showed.
The firms that manage troubled loans in commercial mortgage-backed securities, known as special servicers, reported in September appraisal reductions for 11 properties, reflecting a total reduction of $150 million that month, the firm reported.
In the previous eight months, there were only three properties that showed a total reduction in value of $15 million; and there were no appraisal reductions published in the first eight months of 2008, Trepp reported.
The largest loan to see its value cut was the Riverton Houses, which was reappraised at $108 million, 68 percent below its original securitized value, The Real Deal reported last month.
But that was just one of many, the data showed. The other properties that saw their values fall in September were the Rocket Lofts, at 98-106 South 4th Street in Brooklyn, which declined 35 percent to $25.7 million; and the Core Club retail condominium at 60 East 55th Street, which lost 56 percent, Trepp figures showed.
Charles Cecil, partner at Opin Partners, an investment advisory firm, said special servicers are conducting more appraisals as a response to the downgrades of CMBS bonds by rating agencies, in an environment where real estate loan performance is deteriorating and loans will be difficult to refinance.
In August, Fitch Ratings downgraded several classes of bonds tied to the Stuyvesant Town and Peter Cooper Village loan, which was packaged into a CMBS pool.
"The downgrades, they put the loan servicers in a peculiar position," Cecil said. The lower ratings force special servicers to ask themselves: "'We've got a bundle of loans in CMBS, and maybe we need to look at what is going on there. Maybe we are getting indicators that the value might not be what it used to be.'"
So to protect themselves, the loan servicers have the appraisals done, he said. He expected more in the coming months.
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Comments
Anonymous
What does it matter? who ever is actually holding the security has sold it to the fed by now.
Comment #1 Posted By: Anonymous 10/13/09
Anonymous
No one is going to want this toxic stuff. Not just that, but we're still early in the game in this awful market. We have about 3-4 years left until we get our current commercial real estate industry straightened out.
Comment #2 Posted By: Anonymous 10/13/09
Anonymous
#1, this matters because small and medium sized banks made almost half of the commercial real estate loans in the go-go years using similar lending standards and now the goose is coming home to roost. We are really screwed.
Comment #3 Posted By: Anonymous 10/13/09
Anonymous
The following is excerpted from Mother Jones Magazine regarding Laurence Gluck and Riverton (Gluck is the guy who bought 16 Mitchell-Lama middle income complexes and has taken or is attempting to take them out of the Mitchell-Lama program, oust the long-term tenants, and charge everyone market rate) ... "It all sounds like a classic tale of the bust except that, unlike ordinary people caught up in foreclosure proceedings, Gluck and his partners have made a fortune off Riverton Houses. Just as homeowners often take out some extra cash when they refinance a property, team Gluck pulled out $67 million—the high-roller version of cash at closing. A homeowner would be on the hook for that extra cash, but Gluck's group purchased Riverton through a limited liability shell company, which allows it to shelter its refinancing windfall in case of a default. Minus the down payment, the partners walk away with nearly $42 million. The Riverton deal exemplifies a strategy known as predatory equity."
Comment #4 Posted By: Anonymous 10/13/09
Anonymous
#4 - wow - Gluck is smart - good for him.
Comment #5 Posted By: Anonymous 10/13/09
Tom from the Bx
The only way the Riverton is worth $108 million is if we still think a whole lot of the middle income tenants are going to move away fast and be replaced by rich folks. Do we really still think that?
Comment #6 Posted By: Tom from the Bx 10/14/09
Anonymous
Gluck's children must be so proud of their schyster father.
Comment #7 Posted By: Anonymous 10/14/09
Anonymous
This is framed in a confusing way. Once a loan moves to special servicing, servicers are REQ'D to order new appraisals. Special servicers dont care at all abour ratings, since they usually own the unrated (1st loss piece). They care about preserving their investment, while master services are concerned about "over-advancing" P&I on properties not worth their debt. In cases where the special servicer does not receive the updated appraisal within 60 days, the appsl reduction amount for the loan is set to 25% of the current balance. This remains in effect until the new appraisal is received.
Comment #8 Posted By: Anonymous 10/14/09
Anonymous
CRE is dead until 2017.
Comment #9 Posted By: Anonymous 10/14/09
Anonymous
Interestesting .. one of the properties belongs to Robin Eshaghpour, the king of Bank / Drug Store deals ... anyone know why his property made the list?
Comment #10 Posted By: Anonymous 10/15/09
Anonymous
#4, was this a Non-Recourse loan?? Sounds unbelievable.
Comment #11 Posted By: Anonymous 10/15/09
Anonymous
Gluck sucks
Comment #12 Posted By: Anonymous 10/15/09
Anonymous
#11 - yes non-recourse - nearly all debt in the 2006 and 2007 vintage were non-recourse.
Comment #13 Posted By: Anonymous 10/15/09
Anonymous
#11 sounds like Gluck should go to jail, or at the very least, be investigated because i'll bet where there's smoke there's fire...like does he pay his taxes, does he have "offshore" accounts?
Comment #14 Posted By: Anonymous 10/16/09
Anonymous
Dump Bloomberg. He's the reason these SOBs are able to get away with these white collar crimes.
Comment #15 Posted By: Anonymous 10/16/09
Anonymous
#10 your right correct, Robin Eshaghpour is behind that property. I know the deal well.
Comment #16 Posted By: Anonymous 11/06/09
Anonymous
Here is the scoop on the Robin Eshaghpour (Sutphin Properties) deal listed on the sheet as WaMu Building - Sutphin Blvd: I hear Eshaghpour's entity bought back the mortgage from the CMBS at a substantial discount. How he did it is what I would like to know as Condit Special Servicers are not the easiest to negotiate with. Does anyone know anything about the deal that may shed light?
Comment #17 Posted By: Anonymous 11/10/09
Anonymous
why
Comment #18 Posted By: Anonymous 11/13/09