InvestorCentric blog reports that

"$566 billion in commercial real-estate debt comes due in 2010 and 2011 and already 20% of construction loans are past due. A flood of commercial property defaults could significantly devalue commercial property and put banks in serious trouble."   You can find more here, http://bit.ly/82AhMz 

 Meanwhile, Expected Reports says, "A lot has been made about the plight of commercial real estate. With prices off over 30% from peak levels, there’s not much to be optimistic about: commercial property sales are plummeting, and vacancies are rising along with unemployment. This does not bode well for future bank earnings.  " You can find more here, http://bit.ly/4YoFRF

The WSJ reports that unfinished real estate projects will weigh on bank projects going forward, You can find more here, http://bit.ly/aeOAIm

Many of these topics will be covered at our April 13th Distressed Commercial Real Estate Summit.  You can find more information below.

 ********  IvyPlus April 13th  Distressed Commercial Real Estate Event , http://bit.ly/cuJMct*******

Crains New York reports that LEM Mezzanine has acquired the Union Square W Hotel.  The W was acquired by Istithmar in 2006 for $285 million.  LEM bid $2 million for the debt on the hotel on Park Avenue South.  Istithmar had submitted a bid of $2.1 million but had also asked for certain changes to the loan covenants, sources said. After a closed-door meeting, LEM was named the winning bidder.

LEM acquired the mezzanine loan in March of 2007 and started foreclosure proceedings in last month after a series of defaults by the borrower.

The W New York Union Square is far from Dubai World’s only distressed property. The fund disclosed last month that it was struggling to make payments on a total of $26 billion in debts. Sources said that to raise cash it might consider selling some other Istithmar-owned properties in New York such as the Jumeirah Essex House on Central Park South and the Knickerbocker Hotel in Times Square.  The full story is here, http://bit.ly/6BJTzm

 We will have a fund discussing opportunities with distressed properties owned by Middle Eastern sources at our December 15th Real Estate Forum. 

 ********  IvyPlus Dec 15th Event – Real Estate Forum, http://bit.ly/7TMu3d*******

More news on the Distressed Real Estate front. Though most of the sub prime mortgage concern has passed, the Alt A reset in mortgages will be triggered over the next 4 years with $2.4 trillion hitting.  Charts are here, http://bit.ly/H2Dav

REITs have experienced a run up in recent times in their stock values, but could be subject to corrections.  The Wall Street Journal reports that CBL & Associates Property may have a correction on it’s 4 X stock increase this year. 

"second-quarter same-store sales in its malls fell 6% year on year and profits are plummeting. From $3.22 a share in 2008, analysts expect CBL’s funds from operations to shrink to $2.42 this year and $1.96 in 2010. In response, CBL has cut its dividend."

Other potential changes could happen with First Industrial and other REITs.  More info here, http://bit.ly/12Hmj2

Meanwhile 2 new REITs have filed for initial public offerings to take advantage of the severe dislocation in Real Estate.  Brookfield Realty Capital Corp, will originate, invest in, and manage, a portfolio of commercial mortgage loans and is seeking to raise up to $500 million.  Also, Marathon Real Estate Mortgage Trust, filed on Friday to raise up to $300 million to invest primarily in mortgage-backed securities, mortgage loans and other real estate-related loans and securities.  Marathon will be managed by Marathon Asset Management LP, which in July was among nine fund managers chosen by the U.S. Treasury to take part in its Public-Private Investment Program, or PPIP.  This brings to 8 the number of firms offering IPOs since early July.  More info here, http://bit.ly/XmVhu

REITs and PE firms are jostling for position distressed debt opportunities.  Costar.com says "Battles between junior and senior players in the commercial property mortgage capital stack are heating up as lenders try to avoid having their investments wiped out by the wave of troubled loans reaching maturities." .  Costar also mentions these troubled deals are coming across the transom,

Mezzanine loan foreclosure activity surveyed by CoStar in recent weeks includes the following:

• Fortress Investment Group bought Sheffield57, a condo project in New York City developed by Kent Swig, for $20 million in a mezzanine foreclosure auction last month. Credit Suisse First Boston filed a default on the $400 million first mortgage in April and Guggenheim Structured Real Estate Partners LLC followed suit on a $240 million mezz loan the following month.
• SL Green Realty Corp. (NYSE: SLG) said last week that 100 Church St., a 21-story office in Lower Manhattan, is on the market and slated for an Oct. 15 auction. The New York REIT alleged that owner The Sapir Organization failed to make payments on an $85 million mezzanine loan provided by SL Green and Gramercy Capital. SL Green has taken over management and leasing of the building.
• Wachovia Bank (now Wells Fargo) filed a foreclosure lawsuit Aug. 18 against BentleyForbes Holdings and BF Las Olas, developers of the Las Olas Center in Fort Lauderdale, FL, which consists of two Class A office towers totaling 415,000 square feet, 52,000 square feet of retail and parking space. BentleyForbes bought the property in 2007 for $230.9 million, a record South Florida price of nearly $500 per square foot. Wachovia, representing a group of lenders, provided a $166 million first mortgage and a $49.4 million mezz loan.
• Mezzanine lenders in Terranea Resort, a $480 million oceanfront project in Rancho Palos Verdes, CA, filed a notice of default Aug. 11 on a $110 million loan to Terranea owner Long Point Development Partners. the Building Union Investment and Local Development Fund of America Trust, of Detroit
• Detroit-based Building Union Investment and Local Development Fund of America Trust (Build) carried out a foreclosure sale of 104 acres in Cornelius, NC, where Cornelius Bromont LLC planned to build the $515 million Augustalee mixed-use project.
• Citigroup seized the luxury 400-room St. Regis Monarch Beach Resort in Dana Point, CA, after owners Farallon Capital Management LLC and Makar Properties fell into default on a $70 million mezzanine loan.
• In June, Bahrain-based Investcorp acquired a senior mortgage loan, a B-note for a senior mortgage and two mezzanine loans, all secured by U.S. commercial property assets, for a "discounted" $170.9 million. An office headquarters building in Washington, DC secured the senior mortgage loan. The two mezzanine loans, secured by office buildings in New York and Los Angeles, were acquired from a private investor. The B-note of a senior mortgage was secured by four self-storage facilities located in the boroughs of New York, and was purchased from a major commercial bank.

more info here, http://bit.ly/6rRtS

***** Quick Reminder, Next IvyPlus Real Estate Forum is September 24th in midtown Manhattan.http://bit.ly/2T3D6z  *********

More info here, http://bit.ly/5o0lP

More info on leverage loans here, http://bit.ly/ILYLj

The IMN’s US Real Estate Opportunity & Private Fund Investing Forum ran several panels on real estate investing.  Investors were excited about many investment bargains they were seeing but were wondering about when the market would hit bottom.  Some of the discussion was about investing in primary markets and not tertiary markets where there seemed little opportunity for strong real estate returns.   There is the feeling that there is a glut of malls, residences and commercial office space.  Some people are expecting national office rate vacancies to approach 25% as they are already at 15% in many parts of the country. 

More info here, http://bit.ly/b6TgY

Ongoing debate on REITs and whether they are a good investment right now are dependent on the success of the PPIP programs which provide more liquidity into the markets.  REITs are being challenged by asset deflation, diminishing cash flow due to the business downturn and widening financing spreads.   Another aspect is that Mezz debt or unsecured debt is at 10 or 12% or higher. 

More info here, http://bit.ly/jd8ZR

Zero Hedge also looks at the REIT environment and does not see positive news outside of PPIP.  "Many REITs that have launched tender offers have IDRs in the ‘BBB’ rating category. Fitch’s ratings for REITs that have launched tender offers range widely, from Public Storage (which has an IDR of ‘A’ by Fitch, with a Stable Rating Outlook) to Centro NP LLC (which has an IDR of ‘CCC’ by Fitch, with a Negative Rating Outlook)"

More info here, http://bit.ly/15l4vJ

Defaults on commercial mortgage- backed securities (CMBS) will triple this year to an all-time high, according to reports by Fitch and Standard and Poor’s.  Standard & Poor’s sets the bar even higher, saying it could even reach 3.5 percent by year-end.  CMBS defaults accelerated 17% from between January and February.    http://www.housingfinance.com/aft/articles/2009/may-jun/0509-upfront-hits-and-misses.htm

Contrary to residential mortgages, CMBS mortgages typically do not amortize but instead refinance every 3 or 10 years.  Loans are repaid with similar new loans.  Most of the loans written over the past 5 years were at 90% of value.  With plummeting values, many of those loans will not be rewritten.  More than 60% of the loans written the last 5 years, about $800 billion are expected to have problems renewing.  More info here, http://www.reuters.com/article/marketsNews/idUSN2834138520090528