Signs of the Times? For as many who say that the capital markets crises is easing or ending or whatever, there is daily evidence that things are not quite that rosy as shoe after shoe continues to drop. A number of this week’s shoes included the following:
The following appeared in this week’s edition of Roundtable Weekly, published by The Real Estate Roundtable.
FINANCIAL MARKETS POLICY
Federal Banking Regulators Preparing Guidelines for "Prudent" CRE Loan Workouts
Federal banking regulators are preparing guidance to facilitate commercial real-estate loan workouts and reduce the growing risk of foreclosures and credit losses for U.S. banks, especially smaller community banks, Bloomberg reported Oct. 14. The guidance "is intended to promote supervisory consistency, enhance the transparency of CRE workout transactions, and ensure that regulatory policies and actions do not inadvertently curtail the availability of credit to sound borrowers," Office of Thrift Supervision (OTS) official Timothy Ward testified at a Senate Banking subcommittee hearing on Wednesday.
Ward, who is OTS' deputy director of examinations, supervision and consumer protection, was joined on the witness panel by Federal Deposit Insurance Corp. (FDIC) Chair Sheila Bair, U.S. Comptroller of the Currency John Dugan, and Federal Reserve Gov. Daniel Tarullo.
"The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters is in CRE lending," said Bair, whose agency has taken over 98 failed banks this year and now has 416 banks on its confidential "problem list" (up from 305 in the first quarter). She added, "Prudent loan workouts are often in the best interest of financial institutions and borrowers."
FDIC Vice Chairman Martin J. Gruenberg expressed similar concerns at the Fall 2009 Roundtable Meeting in Washington, D.C., last month. (Roundtable Weekly, Oct. 2)
Tarullo said the guidelines will include the principle that modifying loans is "often in the best interest of both the financial institution and the borrower," and will call for banks to accurately account for loan losses (AP, Oct. 14)
A Fed presentation to banking regulators last month warned U.S. banks "will be slow to recognize the severity" of losses on commercial real estate loans -- "just as they were in residential" (The Wall Street Journal, Oct. 7; Roundtable Weekly, Oct. 9).
The forthcoming bank regulatory guidance on loan workouts should complement a recent IRS rule (Revenue Procedure 2009-45)--recommended by The Roundtable and its real estate trade association partners -- allowing commercial real estate borrowers to proactively discuss possible modifications to securitized loans that are at risk of default (Roundtable Weekly, Sept. 18).
Although federal policymakers have taken some extraordinary policy actions this past year to try to address the CRE liquidity crisis, The Roundtable continues to urge additional policy steps to help restore flows of real estate debt and equity capital.
"The current credit system in America simply does not have the capacity to meet the legitimate demand for commercial real estate debt," Roundtable President and CEO Jeffrey DeBoer testified before Congress in July. "As the demands for debt remain unmet, the stress to the financial services system overall, individual financial institutions, and those who have invested in real estate directly or indirectly will increase. . . there is increasing concern about a potential wave of defaults--from maturing loans--that will further exacerbate the current credit crisis. Needless to say, this has broad systemic consequences and will reverse the progress that has been made in healing the banking system and credit markets to date."
Monday’s Numbers
Year-to-Date Equity Market Performance (as of October 17, 2009):
DJIA(1): +13.91%
S & P 500(2): +20.43%
NASDAQ(3): +36.76%
Russell 2000(4): +23.76%
MSCI U.S. REIT(5): +10.27%
(1) Dow Jones Industrial Average.
(2) Standard & Poor’s 500 Stock Index.
(3) NASD Composite Index.
(4) Small Capitalization segment of U.S. equity universe.
(5) Morgan Stanley REIT Index.
U.S. Treasury Yields: (as of October 17, 2009)
3-month: 0.06%
6-month: 0.15%
2-Year: 0.95%
5-Year: 2.35%
10-Year: 3.38%
Commercial Mortgage Alert has added loan spreads to its weekly “Market Monitor” data page. The spreads are based upon a weekly survey of 15 active portfolio lenders conducted by Trepp, the analytics firm. Survey participants include: national banks, insurance companies, and finance companies.
| Asking Spreads over U.S. Treasury Bonds in Basis Points (10-year Commercial and Multifamily Mortgage Loans with 50% to 59% Loan-to-Value ratios) | ||||
| 9/18 | 9/30 | 10/2 | 10/9 | |
| Office | 381 | 381 | 391 | 407 |
| Retail | 396 | 396 | 405 | 430 |
| Multifamily | 334 | 334 | 361 | 375 |
| Industrial | 373 | 373 | 383 | 395 |
| Source: Trepp | ||||
Indicated Spreads for Conventional Fixed and Floating Commercial Mortgages (as of September 1, 2009)
| Property Type | Mid-Point of Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages | ||||
| 7/14/09 | 7/29/09 | 8/20/09 | 9/01/09 | 10/1/09 | |
| Multifamily: Non-Agency | +340 | +350 | +400 | +425 | +413 |
| Multifamily: Agency | +210 | +220 | +220 | +240 | NA |
| Regional Malls | +500 | +475 | +470 | +458 | +350 |
| Strip/Power Centers | +455 | +450 | +465 | +465 | +240 |
| Multi-Tenant Industrial | +450 | +463 | +475 | +488 | +458 |
| CBD Office | +420 | +420 | +443 | +460 | +465 |
| Suburban Office | +460 | +460 | +478 | +475 | +470 |
| Full-Service Hotel | +525 | +453 | +525 | +563 | +460 |
| Limited-Service Hotel | +588 | +550 | +550 | +575 | +475 |
| 5-Treasury | 2.33% | 2.70% | 2.65% | 2.47% | 2.41% |
| 10-Year Treasury | 3.44% | 3.69% | 3.46% | 3.45% | 3.43% |
| Source: Cushman & Wakefield Sonnenblick-Goldman, LLC. | |||||
| Property Type | Mid-Point of Floating Rate Commercial Mortgage Rate Spreads for 3-5 Year Fixed-Rate Mortgages | ||||
| 7/14/09 | 7/29/09 | 8/20/09 | 9/01/09 | ||
| Multifamily: Non-Agency | +450 | +413 | +413 | +413 | +413 |
| Multifamily: Agency | NA | NA | NA | NA | NA |
| Regional Malls | +550 | +550 | +500 | +475 | +450 |
| Strip/Power Centers | +538 | +538 | +488 | +488 | +438 |
| Multi-Tenant Industrial | +488 | +488 | +488 | +413 | +388 |
| CBD Office | +513 | +525 | +488 | +375 | +375 |
| Suburban Office | +600 | +600 | +550 | +388 | +400 |
| Full-Service Hotel | +650 | +650 | +650 | +600 | +600 |
| Limited-Service Hotel | +725 | +725 | +725 | +650 | +650 |
| 1-Month LIBOR | 0.30% | 0.29% | 0.27% | 0.26% | 0.25% |
| 3-Month LIBOR | 0.54% | 0.49% | 0.43% | 0.38% | 0.29% |
| Source: Cushman & Wakefield Sonnenblick-Goldman, LLC. | |||||
