Treasury Picks 9 for PPIP

Some big commercial real estate players on the list:

Following a comprehensive two-month application evaluation and selection process, during which over 100 unique applications to participate in Legacy Securities PPIP were received, Treasury has pre-qualified the following firms (in alphabetical order) to participate as fund managers in the initial round of the program:

• AllianceBernstein, LP and its sub-advisors Greenfield Partners, LLC and Rialto Capital Management, LLC;
• Angelo, Gordon & Co., L.P. and GE Capital Real Estate;
• BlackRock, Inc.;
• Invesco Ltd.;
• Marathon Asset Management, L.P.;
• Oaktree Capital Management, L.P.;
• RLJ Western Asset Management, LP.;
• The TCW Group, Inc.; and
• Wellington Management Company, LLP.

The AG&Co/GE Partnership has at least $5 billion of real estate AUM between them, and each have well-known and highly-thought-of management teams. I would guess BlackRock has somewhere in the neighborhood of $3 billion. Marathon $800 MM and Oaktreee $600 MM. (Pure guestimations on my part -- I'm sure their respective websites include some information on the real estate portfolios.)

What strikes me, though, is (a) the fact that so-called "manipulative" and "excessively speculative" hedge funds and private equity funds are pretty much the only ones chosen, and (b) how distressed Oaktree and Marathon's real estate portfolios are. These are the managers Treasury chose?

I guess since the Treasury itself is trying to manipulate markets and overpay for assets, some of these selections make a little more sense.

In the Tank

And I thought the second quarter was bad.

One-Month LIBOR shot up overnight to 5.54%, crushing DSCRs on floating rate deals that -- until today -- were the only reliable way to finance large transactions. Forget finding fixed-rate financing -- 3Cap's friends at Deutsche, Wachovia, LaSalle, and Credit Suisse aren't even quoting. The few, the brave few who ARE quoting are giving notice that their quotes are good for about 24-hours, and any terms provided are subject to market conditions.

A good friend at Citigroup has sized up 2 deals since the weekend. Neither are likely to transact.

And now, I'm sure you've read that BNP Paribas has frozen 3 funds, a la Bear Stearns, citing the "fact" that they couldn't "fairly" value their holdings.

Rumor has it that Wachovia may report sizable losses in its CMBS lending and securitization operations from aggressive loans that they haven't been able to securitize. But given that Wachovia is one of the faster banks on the street to clear loans off their shelves, I find it hard to believe that there won't be several others (if the rumor is true, of course).

Most b-note players are out on the golf course for the rest of the month, as subordinate financing becomes more scarce by the day. No one can finance their originations via CDOs, so why bother?

I keep hearing the first-year guys and summer associates yell in delight about how the 10-yr Treasury yield has fallen 10 bps this morning, as if the 10-year matters right now.

The New York Sun says the mayhem may actually be good for the markets. Wha? In what time frame? And for whom? Certainly lower leveraged pension funds, maybe insurance companies and balance sheet guys in the short term. But long term? How is it "good for the markets" when you cut transactions by at LEAST 50% over the course of at least the next year??

It's a New Dawn, It's a New Day

After the busiest three weeks of my life, I'm trying to get back into the routine of posting here. Oh, how much has changed in the past 17 days...

Forget what you thought you learned about today's CMBS world during the last 18 to 24 months - it's been flipped faster than the EOP portfolio. With the subprime meltdown, ratings agency warnings, and activist CMBS buyers at all levels serving as catalysts, the CMBS market underwent an enormous adjustment seemingly overnight. Banks re-traded loan apps on their some of their most successful and profitable clients, several banks made it be known that they are out of the 10-year interest-only lending business for good, some borrowers unable to obtain financing walked away from hard deposits, and one of the go-to funding sources for large deal financings went POOF -- literally -- overnight.

Some of the biggest news items since the hiatus:

CMBS Spreads Widen from Top to Bottom (IPG/CRE News [$])
From the top classes to the B-Pieces, CMBS spreads widened. Most see it as a result of S&P and Fitch warnings about law underwriting and new ratings standards. Some point to the subprime mortgage fallout for why CMBS buyers are feeling a little jittery. Either way, it's affecting everyone from the borrowers to banks with un-securitized loans still on their books.

Institutional Real Estate Cap Rates Hit Record Lows (IPG/CRE News [$])
Something has to give, but it didn't happen in the first quarter, as cap rates dropped even further across all property types, according to Bank of America. Marketwide, the average cap rate hit 5.61%, which continued a now 9-quarter decline. For those scoring at home, that's a less than a 100-bp spread on today's Ten-Year at 4.652%. Fantastic.

60 Wall Trades for $1.18 Billion (Reuters - FREE!)
Paramount takes the downtown asset that's been on the market since November 2006. Something may have changed since I last looked at the deal, but the net rentable are should still be 1,625,483 sf, meaning the price was $738 psf, considered a bargain in New York these days. My last underwriting pegged the initial year's NOI at about $64.5 million, which hints at a 5.47% cap rate. That could be off though, since I haven't seen the deal in about 6 months. Looks as though DB got their target price... less about $20 million (only a 1.7% haircut).

There's no real articles on the on-going CMBS adjustments and how it's affecting the market (that I've seen), except for the pay publications like Commercial Mortgage Alert, which is proving to be a priceless resource right now.

Hoping to find time to post more regularly....

3.0%

Dillon Read - DONE!?!

Can't post much now, but the word is that Dillon Read Capital, a subsidiary of UBS, apparently gathered their employees in the ballroom this afternoon and shut everything down at 5:00 pm... Told everyone not to come to work in the morning. Would be HUGE news in the morning.

Rumor goes that they lost a billion dollars plus in the last couple of weeks. I'm sure more info will slowly leak out if proven out, but this is definitely the biggest news in a week that's been full of news (that I haven't had time to post about).

Update Thursday, 9:35 AM: It sounds like the amount lost noted above was overblown by *just a bit* but the media caught wind of this around 4:30 AM this morning. Click for stories from Forbes and Bloomberg.

Update Thursday, 5:10 PM: Although not reported anywhere (that I have been able to find), today's rumor is that Dillon Read was a significant financial backer of New Century, the now-defunct subprime group. This was supposedly responsible for a large chunk of DR's losses.

According to CRE/IPG, Brian Harris, the BSD of the commercial real estate group will take a similar position with UBS.

** ThreeCap's site traffic/visitor count has exploded today due to the news and this post being the first to post anything about it on the web yesterday evening (even though no one wants to leave comments). Welcome to all the new readers - now, don't you all have work you should be doing??

Moody's: "Conduit Loan Underwriting Continues to Slide - Credit Enhancement Increase Likely"

According to CRE/IPG, Moody's will start increasing subordination levels for CMBS transactions shortly.

This comes on the heels of Fitch stating last week that aggressive CMBS underwriting will lead to more defaults, drawing some parallels between current aggressive lending in the commercial sector with the ongoing subprime fallout (which I thought I linked here last week, but I guess not).

It said its increases, which would be meted out on a deal-by-deal basis, would amount to the equivalent of a half to a full ratings notch. A full ratings notch increase in subordination would mean that a deal's Baa2 bond class, which today would typically have a 4 percent subordination level, would face a 5 percent level - roughly today's requirement for a Baa1 bond.

Not all deals will be affected. "Well-diversified collateral pools, a substantial volume of investment-grade loans, and other strong features could still receive subordination levels similar to those granted during the first quarter."

So while the other ratings agencies played UN and just talked about it, at least Moody's is doing something about it... you've got to give them credit for that. Although I don't like it because it makes my job tougher, Moody's is the only agency hanging their heads out right now about an issue that all the agencies have weighed in on - the only one to risk their volume of rating assingments by actually changing their guidelines.

Q1 2007 CMBS & CDO League Tables Out

Been out of town a couple of days...

According to Commercial Mortgage Alert (no link to actual story/rankings, you have to pick up the print edition), Morgan Stanley, Wachovia, JP Morgan Chase and RBS Greenwich topped the Bookrunner league tables for the first quarter of 2007. While Morgan Stanley led in Global CMBS and Non-US CMBS, JP Morgan edged them out for the US lead. Wachovia led in the CDO division, and RBS Greenwich came out on top in Agency CMBS.

According to CMA, US CMBS issuance was up 32% from a year ago, and and foreign CMBS was up 48%. However, this preceeds another ratings warning (this time from Moody's, which I'll type about when things calm down in a bit) and even an even further widening of mezz spreads.

Top 15 Global CMBS Bookrunner Rankings for Q1 2007 are:

1. Morgan Stanley ($11.84 billion)
   
2. JP Morgan Chase ($9.56 billion)


3. Merrill Lynch ($7.84 billion)


4. Wachovia ($7.77 billion)


5. Deutsche Bank ($6.61 billion)


6. Credit Suisse ($4.15 billion)


7. Lehman Brothers ($6.08 billion)


8. RBS Greenwich ($6.01 billion)


9. Citigroup ($4.15 billion)


10. Banc of America ($3.73 billion)


11. Bear Stearns ($3.03 billion)


12. Goldman Sachs ($2.83 billion)


13. Barclays Capital ($1.75 billion)


14. ABN Amro ($1.43 billion)


15. West LB ($523 million)

Top 10 US-Only CMBS Bookrunner Rankings:

1. JP Morgan Chas ($9.24 billion)


2. Morgan Stanley ($8.45 billion)


3. Wachovia ($7.78 billion)


4. Merrill Lynch ($7.15 billion)


5. Credit Suisse ($4.77 billion)


6. RBS Greenwich ($3.74 billion)


7. Banc of America ($3.73 billion)


8. Lehman Brothers ($3.71 billion)


9. Citigroup ($3.68 billion)


10. Deutsche Bank ($3.31 billion)

Friday Notes

Apollo takes Realogy Private in $9 Billion Deal (Globe St) - as the real estate news site first reported months ago, the merger is official and should be completed within 2 weeks.

CIT Filed $275mm IPO (Forbes / AP) - Care Investment Trust (NYSE: CIT) filed their IPO yesterday as a public REIT. CIT shares dipped...

Yanks (Lehman) Take Current American Real Estate Buying Aggression to Paris (NYO) - In the largest single-asset real estate transaction in European history, Lehman takes down Coeur Defense for $2.8 billion.

S&P Downgrades 6 Classes of Condo CMBS (CRE/IPG) - 6 classes of a Credit Suisse CMBS transaction were downgraded by S&P today (some significantly) as the condos, concentrated in Florida and New York, aren't selling as fast as hoped for. Surprising, given the high quality and track record of the developers and investors involved in the conversions mentioned.

Simon Almost Done with $7.9 Billion Mills Acquisition (also CRE/IPG) - According to the article linked, the deal should be complete "within days".