Post by unlawflcombatnt on May 7, 2007 2:32:37 GMT -6
A May 2nd article in the New York Times describes the impending crash of the commercial real estate market. The title of the article, written by Terry Pristin, is A Warning on Risk in Commercial Mortgages. Below is an excerpt from the article
"Spurred by the collapse of the subprime mortgage market, the leading bond rating agencies are beginning to crack down on what they see as risky lending practices in commercial real estate.
Low interest rates and an abundance of investment capital have led to heady times for buyers and sellers of office buildings, hotels and other income-producing property. Buildings have traded at record prices and loan terms have become increasingly generous, with many buyers putting little or no equity into the deals.
Like residential loans, commercial mortgages are pooled and packaged into bonds that are sliced up into portions carrying different degrees of risk. According to Moody’s, there were $769.6 billion in commercial mortgage-backed securities at the end of last year, representing 26.1 percent of all outstanding commercial mortgages, including apartment buildings.
The agencies that rate these bonds on behalf of bond dealers have issued warnings in the past, but last month they sounded a new note of urgency, saying for the first time that they would adjust their ratings to reflect their concerns.
“Underwriting has gotten so frothy that we have to take a stand,” said Jim Duca, a group managing director at Moody’s Investors Service. “The industry was heading to Niagara Falls.”
The readjustment is occurring just as signs are emerging that the office market is slowing down nationwide....the average vacandy rate for 58 metropolitan markets across the country rose to 12.6% from 12.5%, the first increase for any quarter since 2004...."
The entire article can be found at
A Warning on Risk in Commercial Mortgages.
"Spurred by the collapse of the subprime mortgage market, the leading bond rating agencies are beginning to crack down on what they see as risky lending practices in commercial real estate.
Low interest rates and an abundance of investment capital have led to heady times for buyers and sellers of office buildings, hotels and other income-producing property. Buildings have traded at record prices and loan terms have become increasingly generous, with many buyers putting little or no equity into the deals.
Like residential loans, commercial mortgages are pooled and packaged into bonds that are sliced up into portions carrying different degrees of risk. According to Moody’s, there were $769.6 billion in commercial mortgage-backed securities at the end of last year, representing 26.1 percent of all outstanding commercial mortgages, including apartment buildings.
The agencies that rate these bonds on behalf of bond dealers have issued warnings in the past, but last month they sounded a new note of urgency, saying for the first time that they would adjust their ratings to reflect their concerns.
“Underwriting has gotten so frothy that we have to take a stand,” said Jim Duca, a group managing director at Moody’s Investors Service. “The industry was heading to Niagara Falls.”
The readjustment is occurring just as signs are emerging that the office market is slowing down nationwide....the average vacandy rate for 58 metropolitan markets across the country rose to 12.6% from 12.5%, the first increase for any quarter since 2004...."
The entire article can be found at
A Warning on Risk in Commercial Mortgages.