The CMBS (Commercial Mortgage Backed Security) markets have been able to somewhat stay out of the banks balance sheet limelight, probably a mixture of changes to tax ruling on commercial mortgages and clever accounting. Either way if you walk down your city's CBD and count, or see A LOT of vacant office space, then you can also add to that very rough calculation that every city (developed economy) has a glut of commercial and office space. Just sitting there.
The CMBS market was the next fear that some analysts felt would cause credit markets to freeze up, assumption was that when writedowns on CMBS's and related debt and debt insurance (credit default swaps) were to take place in 2009 and 2010. A second credit crunch would ensure. Which hasn't materialized at this point. Although we may be on our way to a massive wave of CMBS losses, sparked by the recent bankruptcy of Blockbuster video
"A potential bankruptcy filing from Blockbuster may have ramifications for various CMBS deals that have exposure to the video rental company, Realpoint said today in a report. Blockbuster is reportedly planning to file for pre-planned Chapter 11 bankruptcy protection as early as September, and may close between 500 and 700 stores across the US as it hopes to restructure its debt and stay in business, according to news reports. Realpoint says that the company is one of the three largest tenants within CMBS at 611 properties securing 581 loans with a principal balance of about $8.2 billion in 298 CMBS deals.
"We are primarily concerned with 320 properties as occupancy will decline to less than 80% after Blockbuster closes/vacates," said the Realpoint analysts. Moreover, Blockbuster occupies 20% or more of the gross leasable area (GLA) at 171 collateral properties (11%) including 22 properties that are single-tenanted (1%). Realpoint also notes that 92 loans ($943.5 million) have DSCRs of 1.10 or less with 58 loans ($662 million) having DSCRs less than 1.00. Thirty-three loans ($372 million) are already delinquent, and 36 loans ($411 million) are already specially-serviced with losses of about $160 million projected on 29 loans. Realpoint also rated the recent $484 million JPMCC 2010-CNTR transaction, which just priced this week. The transaction has exposure to Blockbuster at eight properties. Of the 72 properties in the portfolio, Blockbuster has a lease at one property, representing approximately 0.14% of the underwritten base rent that was dark as of the date Realpoint rated the securities and as such, the rent payable by such tenant was not considered in connection with the rating of the securities, Realpoint said. However, the rent payable by Blockbuster at the remaining seven properties, representing approximately 0.70% of the underwritten base rent, was taken into account upon the rating of the securities and is included in underwritten base rent, and therefore, underwritten gross rental income. Such underwritten base rent represents approximately 0.70% of the total underwritten base rent attributable to all of the properties"
Good to watch LIBOR/CDS spreads and interbank money rates on Blockbusters filing for Chapter 11; may seep into risk aversion as a credit market freeze on CMBS's losses.
Until of course the central banks of the world gobble it all up and add to their unrealized losses.
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