Monday, April 20, 2009

Commercial Real Estate: A Rose Among Thorns? John B. Levy & Company Finds Few Positives Budding in Today's Commercial Real Estate Market

RICHMOND, VA, April 20, 2009 (PRWEB)--"Every Thorn Has Its Rose" is the latest in a series of timely, informative podcasts produced by John B. Levy & Company, and it provides clients and analysts with a sobering vision of what they can expect in today's commercial real estate market.

This new podcast is available online at

Conditions that scorched the commercial real estate market in fourth quarter 2008 showed no signs of abating in January and February of 2009, dashing hopes among developers and investors alike that there might be an uptick in sales and refinancing activity in the new year.

Market watchers in the crowd longing for the days of 2007 discovered the disappointment of looking at the world through rose-colored glasses.

"Any hint of rosy optimism has been overrun with thorns," says John Levy, (top right photo) founder of John B. Levy & Company.

(John B. Levy & Co.-owned building at 4221 Forbes Blvd., Lanham, MD, top left photo)

"Most real estate owners, developers, and investors are beginning to realize that commercial real estate isn't going to recover in 2009, and probably not in 2010."
He adds, "we're looking toward 2011."

(John B. Levy & Co.-owned Fairfax Building in Richmond, VA, middle right photo)

Levy offers a couple reasons for his assessment.

First, of the top100 largest markets in the United States, 90 are still showing job losses, indicating that the current recession is both deep and wide.

Jobs drive the demand for multifamily housing, and they create the need for retail and office space. In addition, commercial real estate is a lagging, not leading sector.

"When the subprime financial market was going over Niagara Falls backward in a canoe in 2007," Levy says, "those of us in the commercial sector were doing just fine.

That said, we shouldn't expect commercial real estate to lead us out of this recession."
While it's difficult to be optimistic about today's market, Levy says there is a rose among the thorns, but it is in the budding stage.

(John B. Levy & Co.-owned International Tower Building, Baltimore, MD, middle left photo)

First, the federal government is pushing massive liquidity into the commercial real estate market via TARP and TALF, and these programs are starting to show promise.

For example, spreads on commercial mortgage backed securities (CMBS) have tightened more than 500 basis points.

Levy also believes we might see the rebirth of CMBS securitization by the end of the year, and the prospect of rejoining securitization and commercial real estate is a huge step in the right direction.

"In the meantime," Levy says, "the biggest problem owners and developers face today is that their loans are maturing and they lack financing opportunities. Almost $300 billion in commercial real estate loans is coming due in 2009, and more than $200 billion comes from bank loans. This situation creates a major challenge."

Levy suggests that owners and developers hire experts to assemble a financial package and help with strategy and negotiations.

He also recommends that those with properties suffering from negative cash flow avoid using personal cash to keep the note current.

Instead, that cash can be used as a principal payment or as additional collateral for negotiations and loan extensions.

(John B. Levy & Co.-owned Washington Center, Washington, D.C., middle right photo)

Finally, Levy suggests, those with a CMBS loan should ask in writing - not over the phone - for their loan to be transferred from the master servicer to the special service.

This strategy is helpful because only the special servicer can extend the loan or offer forbearance.

"Now is not a good time to be out there all alone," Levy says. "We're in uncharted waters right now, and a lot of owners and developers need help. This market is dicey."
Firm Background
(John B. Levy & Co.-owned Power Mill Road Office Building, Beltsville, MD., bottom left photo)

John B. Levy & Company, Inc. is a real estate investment-banking firm headquartered in Richmond, Virginia.

Since John Levy founded the company in 1995, the firm has structured over $3.5 billion in financing for developers and owners of commercial and multi-family projects nationwide, often investing its own proprietary funds into transactions with its clients.

Mr. Levy is an expert on commercial real estate financing and the effects of interest rates on commercial real estate markets. He is the originator and author of the Barron's/John B. Levy & Company National Mortgage Survey, a monthly survey of more than 30 of the country's largest institutional investors, as well as buyers and sellers of commercial mortgage-backed securities, which Barron's published for over 23 years.
(John B. Levy & Co.-owned office portfolio in MD and VA, bottom right photo)

Mr. Levy is also co-creator of The Giliberto-Levy Commercial Mortgage Performance Index (sm), the first and pre-eminent index to measure and analyze the performance of investments in the commercial mortgage industry.
Additionally, he is a member of the Board of Directors of Anthracite Capital Inc. (NYSE: AHR), a New York Stock Exchange REIT managed by BlackRock, Inc and a former director of Value Property Trust.

For more information about John B. Levy & Company, please visit the firm's website at or call Andrew Little at 804-644-2000, extension 260.

Fitch: U.S. CREL CDO Delinquencies Continue to Rise

NEW YORK, NY, April 20, 2009--Twenty-one newly delinquent assets led to an increase in U.S. commercial real estate loan (CREL) CDO delinquencies to 6.5% for March 2009, up from 5.4% in February 2009, according to the latest CREL CDO delinquency index (CREL DI) from Fitch Ratings.

Fitch currently rates 35 CREL CDOs encompassing approximately 1,100 loans and 370 rated securities/assets with a balance of $23.8 billion.

28 CREL CDOs contained at least one delinquent loan with individual delinquency rates ranging from less than 1% to 22.1% of the CDO par balance, as of the March 2009 reporting period.

Fitch continues to monitor CDO delinquencies on a monthly basis. Since September 2008, Fitch has taken negative actions on 20 of its 35 Fitch-rated CREL transactions with more downgrades and Negative Rating Watches anticipated as transactions are reviewed.

In contrast to the recent trend of limited repurchases, six assets (27 basis points of the CREL DI) were repurchased from three different CDOs in the March reporting period.

One asset manager repurchased two assets from its CDO at par, while the four other assets from two different CDOs were repurchased at an average discount to par of 46.3%, including one defaulted security that was repurchased at 0.001% of par.

Many CDOs allow for repurchases at prices below par based on market pricing or third party opinion of value.

The repurchases were likely prompted by an effort to maintain cushion in par value tests, thus avoiding the diversion of cash flow from the CDO’s preference shares.

While only one repurchased asset was haircut in the prior month for purposes of its CDO’s par value calculation; the remaining assets were expected to be haircut imminently based on their impaired statuses.

In most cases, new higher rated assets were traded into the CDO at a discount within a few days of the repurchases to re-build the total CDO par. Fitch considers asset purchase prices in its evaluation of CDO collateral.

‘Further maturity defaults are likely as the illiquid credit markets provide limited prospects for the payoff of loans,’ said Senior Director Karen Trebach.

Excluding the repurchased assets, nearly all of the new additions to the CREL DI consist of matured balloon loans.

Further, reported loan extensions decreased to 21 for the month, down from 37 in February, and more in line with the prior two months’ totals.

Non-cash flowing property types comprise the highest percentage of assets in the CREL DI. Loans backed by interests in land are now the highest percentage of assets in the CREL DI at approximately 32%.
Condominium conversions and construction loans comprise an additional 11.1%. ‘Under the current credit market conditions, Fitch anticipates increased defaults on land loans as debt service reserves burn off and business plans fail to actualize,’ said Trebach.

The CREL DI includes loans that are 60 days or longer delinquent, matured balloon loans, and the current month's repurchased assets.

Karen Trebach +1-212-908-0215 or
Stacey McGovern +1-212-908-0722, New York.
Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278.