Trouble Ahead For Commercial Real Estate, CMBS, Ross Says

Wilbur Ross came out as bearish on the commercial real estate market in his keynote speech today.

  • 27 Oct 2009
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 --Olivia Thetgyi & Libby Sallaberry Wilbur Ross came out as bearish on the commercial real estate market in his keynote speech today. “We think fundamentals probably are still in a deteriorating mode... We think there will be lots of problems,” he said. Many of the problems in the commercial real estate market stem from how the loans were originated, Ross said. “A lot of deals put on in 2005 to 2007 were done at very aggressive levels, that is, low cap rates,” he said. Complexity of the deals is also an issue now in a distressed environment. Commercial mortgage-backed securities with many tranches will prove a boon for lawyers but a concern for investors due to their complexity and the fact their deal documentation has not been thoroughly tested yet.  Current conditions in the market do not bode well, either. “Very early in the cycle, everything we see and hear suggests occupancy rates are going down,” Ross said. The way commercial real estate loans are being worked out is also problematic, he said. “First, they amend the loans, then they extend, then when that doesn’t work, they just pretend about them. I believe we’re moving into the pretend mode as we speak,” he said. Bank valuations of properties can pose problems, too. “The problem with the banks is they’re not really marking things to market. It makes it hard to structure a joint venture if the market’s view of the property is a lot lower than the bank’s view,” he said.

When quizzed if he was concerned about the impact of rising interest rates on the residential and commercial real estate sectors, he said, “I’m less worried about interest rates going up next year than I am about the strength of the economy if there isn’t another stimulus of some sort.” That said, he noted government stimulus becomes more likely as elections approach.

  • 27 Oct 2009

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 BNP Paribas 10,542 20 17.55
2 Bank of America Merrill Lynch (BAML) 6,103 21 10.16
3 Citi 5,130 13 8.54
4 JP Morgan 4,681 6 7.79
5 Morgan Stanley 4,137 11 6.89

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
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  • Today
1 Citi 80,818.31 235 11.64%
2 Bank of America Merrill Lynch 65,088.22 185 9.37%
3 Wells Fargo Securities 56,145.09 163 8.08%
4 JPMorgan 53,381.65 156 7.69%
5 Credit Suisse 44,872.46 115 6.46%