Another win for CMBS – and REITs

Another sign has emerged that the CMBS market is starting to come back. REIT Ramco-Gershenson Properties Trust  just closed on a new $31.3 million CMBS loan with J.P. Morgan. It’s not the much-longed for multi-borrower conduit type deal, but still. Ramco-Gershenson secured a loan at 60% LTV for two retail properties at a ten-year term at a fixed rate of 6.5%.

The deal is also a nod to REITs, the publicly-traded ones, that is, which have become de facto kingmakers in the commercial real estate debt and equity markets. The biggest boost to CMBS, it must be noted, came from another REIT – Developers Diversified Realty – last year with its $400 million CMBS.

DDR then disappointed the market by declining to go back for a second pass. Instead, it has recently priced a $300 million  stock offering. That move wasn’t so much a commentary on the still-nascent CMBS market, but rather an illustration that REITs basically have all sorts of capital raising avenues open to them these days.

Does FDIC think about the impact it’s having on commercial real estate

Let me start off by saying that of course FDIC’s main mission is to get the best deal it can for taxpayers. The agency is trying to sell off a huge number of assets that it has seized from failed banks. Of course it is going to do what it can to get the best price.

But it would be nice if it gave some thought to the US commercial real estate market and the impact its actions could have there. Two recent news items suggest that CRE is not at the forefront of FDIC’s thinking as it goes about dispersing the assets now under its control.

The most blatant example is news reported by Bloomberg that FDIC is holding a $1 billion auction in which it is selling off loans – including a loan to the build a W Hotel in Atlanta – that may trigger write downs among other banks as well. Half of the loans were originated by Silverton Bank, according to Bloomberg – but several other banks joined Silverton in providing the $80 million W construction loan. These banks will have to take write-downs as the Silverton loan goes to auction, and possibly push many to the edge of insolvency. It’s not just this auction: reportedly of the $50 billion or so in loans seized by FDIC, 63% involve other lenders.

The other news item – again, reported by Bloomberg- also points to future woes for CRE, thanks to FDIC actions. Reportedly FDIC is seeking pension fund money to invest in failed banks. It’s a smart move for FDIC, which sees this is a good way to lower fees, according to Bloomberg. But the CRE industry should wonder if these funds will re-allocate money slotted for acquisitions or other investment into FDIC deals.