Commercial-Mortgage Bond Spreads Soar on Harlem Loan (Update2)
By Sarah Mulholland
Aug. 21 (Bloomberg) -- Yields on commercial real estate securities relative to benchmarks rose to near record highs amid concern that Riverton Apartments, a high-rise complex in Manhattan's Harlem neighborhood, will default on a loan.
AAA rated commercial mortgage-backed bonds widened about 37 basis points to 305.57 basis points more than 10-year swap rates during the week ended yesterday according to data from Bank of America Corp. A basis point is 0.01 percentage point.
The gap, or spread, jumped after a trustee report showed payments wouldn't be made by Rockpoint Group LLC and Stellar Management in September on a $225 million loan on the 1,230-unit Riverton. The property was refinanced in December 2006 using optimistic assumptions for anticipated income, a practice that became common as prices reached their peak, said Alan Todd, head of commercial-mortgage backed securities research at JPMorgan Chase & Co.
``It is indicative of the type of loans that were allowed to get securitized during this time,'' Todd, who is based in New York, said yesterday in a telephone interview.
The $776 billion commercial-mortgage bond market hasn't faced the same rate of late payments as debt tied to subprime home loans. Delinquencies on commercial mortgage bonds increased 2 basis points to 0.43 percent in July, according to Fitch Ratings. Total delinquencies for subprime loans in 2006 bonds climbed to 41.7 percent, based on July reports from trustees, from 34.2 percent in February, Standard & Poor's said today.
Rent-Stabilized Apartments
At Riverton, income projections factored in converting rent- stabilized apartments to market rates. Almost 93 percent of the New York property's units were rent stabilized when the loan was originated, according to a JPMorgan report on Aug. 15 from analysts led by Todd. The owners intended to deregulate 53 percent of all the apartments by 2011, more than doubling the average monthly rent on those units from $894 to $2,261.
Only 10 percent of the units in the 12 buildings were converted to fair-market rents as of July, according to the Aug. 13 report from trustee LaSalle Global Trust Services Ltd. in Chicago.
The borrower burned through a $19 million reserve to cover the shortfall in cash flow that was expected from initially lower rent payments, according to an Aug. 15 report from Lehman Brothers Holdings Inc. analysts Aaron Bryson and Tee Yong Chew in New York.
A telephone call to Rockpoint wasn't immediately returned.
The Riverton loan was packaged into bonds as part of a $6.6 billion commercial mortgage debt offering sold in March 2007 by Citigroup Inc. and Deutsche Bank AG, according to Bloomberg data. The losses on the loan could ``wipe out'' investors who bought the lower-rated pieces of the securitized debt, according to the Lehman report.
``We expect that additional pro forma loans will likely suffer a fate similar to Riverton Apartments,'' the Lehman analysts wrote.
The funny thing is, I posted this the other day and was told that it has nothing to do with NYC RE. I guess it matters a little, it grabbed a headline on Bloomberg. All signs point to major NYC RE drop.
dco - do you also use the name "jake"? I remember he posted something on this a few days ago which West81st and I criticized as not being a good indicator that the market is necessarily falling. We didn't say it had nothing to do with NYC RE (it clearly does). I still fail to see how Riverton's problems in deregulating apartments demonstrate how NYC RE will drop, though. If you want to make that connection - feel free, though.
joepa - I posted it the other day. Mt intention was not to directly connect the article to residential real estate, however the purpose was to exhibit an example, of how the credit problem is just beginning for commercial projects. I have argued, that this crisis, has set in motion a series of events, that must occur way before it ever can recover. Along this path, indicators, as I like to refer to them as, will pop up. Most people will never realize the significance. Some may recognize it as a noticeable event, but very few will recognize it as a piece of a much bigger picture. That's my connection, and the reason it may seem, that I post useless or unrelated articles.
zorter, where have you been?, on Monday EddieWilson was exposed totally naked!! for what he is and after posting four dozen meaningless discussion topics and nearly 200 insults in the two days after being caught with his panties down, he then told everyone he was resigning from streeteasy boards for 6 months. He will be back under the EddieWilson name in the second half of February to tell you how stupid you and all the rest of us are. Right now he's taking on the personality of dco who also posts new discussion topics that are always negative and rarely anything more meaningful than a copy and paste from another source. Have a nice evening!
ESueCho- In case you haven't noticed, I did not cause this housing bubble. Ironically, Brokers are just as guilty for this bubble, as anyone else in the RE industry. Next time you feel anger over these issues, I suggest you project it on those who actual caused this mess. I'm only trying to help people save money.
Harlem default.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aM3zwmra0p5Q&refer=home
Commercial-Mortgage Bond Spreads Soar on Harlem Loan (Update2)
By Sarah Mulholland
Aug. 21 (Bloomberg) -- Yields on commercial real estate securities relative to benchmarks rose to near record highs amid concern that Riverton Apartments, a high-rise complex in Manhattan's Harlem neighborhood, will default on a loan.
AAA rated commercial mortgage-backed bonds widened about 37 basis points to 305.57 basis points more than 10-year swap rates during the week ended yesterday according to data from Bank of America Corp. A basis point is 0.01 percentage point.
The gap, or spread, jumped after a trustee report showed payments wouldn't be made by Rockpoint Group LLC and Stellar Management in September on a $225 million loan on the 1,230-unit Riverton. The property was refinanced in December 2006 using optimistic assumptions for anticipated income, a practice that became common as prices reached their peak, said Alan Todd, head of commercial-mortgage backed securities research at JPMorgan Chase & Co.
``It is indicative of the type of loans that were allowed to get securitized during this time,'' Todd, who is based in New York, said yesterday in a telephone interview.
The $776 billion commercial-mortgage bond market hasn't faced the same rate of late payments as debt tied to subprime home loans. Delinquencies on commercial mortgage bonds increased 2 basis points to 0.43 percent in July, according to Fitch Ratings. Total delinquencies for subprime loans in 2006 bonds climbed to 41.7 percent, based on July reports from trustees, from 34.2 percent in February, Standard & Poor's said today.
Rent-Stabilized Apartments
At Riverton, income projections factored in converting rent- stabilized apartments to market rates. Almost 93 percent of the New York property's units were rent stabilized when the loan was originated, according to a JPMorgan report on Aug. 15 from analysts led by Todd. The owners intended to deregulate 53 percent of all the apartments by 2011, more than doubling the average monthly rent on those units from $894 to $2,261.
Only 10 percent of the units in the 12 buildings were converted to fair-market rents as of July, according to the Aug. 13 report from trustee LaSalle Global Trust Services Ltd. in Chicago.
The borrower burned through a $19 million reserve to cover the shortfall in cash flow that was expected from initially lower rent payments, according to an Aug. 15 report from Lehman Brothers Holdings Inc. analysts Aaron Bryson and Tee Yong Chew in New York.
A telephone call to Rockpoint wasn't immediately returned.
The Riverton loan was packaged into bonds as part of a $6.6 billion commercial mortgage debt offering sold in March 2007 by Citigroup Inc. and Deutsche Bank AG, according to Bloomberg data. The losses on the loan could ``wipe out'' investors who bought the lower-rated pieces of the securitized debt, according to the Lehman report.
``We expect that additional pro forma loans will likely suffer a fate similar to Riverton Apartments,'' the Lehman analysts wrote.
To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net
Last Updated: August 21, 2008 16:16 EDT
The funny thing is, I posted this the other day and was told that it has nothing to do with NYC RE. I guess it matters a little, it grabbed a headline on Bloomberg. All signs point to major NYC RE drop.
dco - do you also use the name "jake"? I remember he posted something on this a few days ago which West81st and I criticized as not being a good indicator that the market is necessarily falling. We didn't say it had nothing to do with NYC RE (it clearly does). I still fail to see how Riverton's problems in deregulating apartments demonstrate how NYC RE will drop, though. If you want to make that connection - feel free, though.
joepa - I posted it the other day. Mt intention was not to directly connect the article to residential real estate, however the purpose was to exhibit an example, of how the credit problem is just beginning for commercial projects. I have argued, that this crisis, has set in motion a series of events, that must occur way before it ever can recover. Along this path, indicators, as I like to refer to them as, will pop up. Most people will never realize the significance. Some may recognize it as a noticeable event, but very few will recognize it as a piece of a much bigger picture. That's my connection, and the reason it may seem, that I post useless or unrelated articles.
joepa, you silly man, dco uses the name Steve, and sometimes the name Eddie, although not for the next 6 months
ESueCho why not for the next 6 months????
zorter, where have you been?, on Monday EddieWilson was exposed totally naked!! for what he is and after posting four dozen meaningless discussion topics and nearly 200 insults in the two days after being caught with his panties down, he then told everyone he was resigning from streeteasy boards for 6 months. He will be back under the EddieWilson name in the second half of February to tell you how stupid you and all the rest of us are. Right now he's taking on the personality of dco who also posts new discussion topics that are always negative and rarely anything more meaningful than a copy and paste from another source. Have a nice evening!
ESueCho- In case you haven't noticed, I did not cause this housing bubble. Ironically, Brokers are just as guilty for this bubble, as anyone else in the RE industry. Next time you feel anger over these issues, I suggest you project it on those who actual caused this mess. I'm only trying to help people save money.
can't people stop posting stories from other news media and say something interesting?
babsie02- OK. You start. What's so interesting, that's on your mind. Go ahead, shoot. I'm listening.
I totally agree with you, babsie02.
http://www.hanselman.com/blog/BlogInteresting32WaysToKeepYourBlogFromSucking.aspx
dco - you didn't answer my question if you also go by the name "jake" on here? I see where he posted this story before but not you.
no
OK - Can you reference where you posted about this the other day?
Here you go.
http://www.streeteasy.com/nyc/talk/discussion/4702-largest-collapses-of-a-new-york-city-residential-development
I had no idea Jake did cover it earlier and I did apologize. However the issue was that it was ridiculed as nothing to do with NYC RE.
No worries - I just didn't remember you covering it so I was confused at exactly who was ridiculing you and the basis for the ridicule.