Commercial Mortgage News

Berkadia Commercial Mortgage, Chicago, has originated $9.55 million in permanent, fixed-rate debt through its FHA program to finance the construction of Victory Centre of Galewood, a seniors' housing community in Chicago. The fully amortizing loan has a 40-year term and an interest rate of 4.47%. Additional sources of funding for the project include 9% Low Income Housing Tax Credits, a city of Chicago Department of Housing HOME loan, an AHP grant from the Federal Home Loan Bank and an Illinois affordable housing tax credit donation credit. Collectively, all sources of funding provided more than $21 million for the development of the project. Len Deering, Tom Sigrist and Paul Matusiak of Berkadia's Chicago office originated the loan. The borrower was Galewood SLF Associates LP.

Fitch Ratings, New York, has also downgraded ratings of Pacific LifeCorp, Newport Beach, Calif., and its subsidiaries, in large part because of fears of continued deterioration of the commercial real estate market could result in higher-than-expected losses for the parent company. PLC has an above-average investment exposure to commercial real estate related assets, including commercial mortgage-backed securities, direct loans and real estate. At the end of the third quarter 2009, these assets represented over 16% of PLC's total invested assets. Fitch is also worried about PLC's exposure to prime and alt-A residential MBS. The rating agency said PLC's gross unrealized loss position relating to these asset classes was $1.2 billion as of Sept. 30, 2009. However, Fitch said it believes PLC's exposure to future investment losses is manageable in the context of its statutory capital and projected operating earnings. PLC's long-term issuer default rating was dropped from "A" to "A-", while Pacific Life Insurance Co., had its insurer financial strength rating cut from "AA-" to "A+".

Fitch Ratings, New York, has downgraded two Farmer Mac Guaranteed Notes Trust transactions as a result of its downgrade earlier this week of the insurer financial strength rating of Metropolitan Life Insurance Co., New York. Fitch said the ratings of the two transactions, Series 2006-2 and Series 2007-1, are based on MetLife's ability to fulfill its obligations under its guaranty. The ratings on both transactions are solely linked to MetLife's IFS rating, which was cut one notch from "A+" down to "A". Both Farmer Mac transactions were downgraded from "AA" to "AA-". A pool of agricultural mortgages secures them, but the notes are general obligations of MetLife. "If MetLife is no longer able to support the transaction, support would then fall to Farmer Mac. If Farmer Mac should then fail to make payments on the notes, the noteholders have ultimate recourse to the collateral," Fitch said.

Bankrupt commercial real estate investment trust General Growth Properties Inc., Chicago, said a Brazilian shopping center venture it owns a stake in has completed an initial public offering in that country. GGP said it did not sell any of its Aliansce shares in the IPO and now has about a 31.4% interest in the company, Aliansce Shopping Centers S.A. The Brazilian company sold 50 million of the 65 million shares involved in the IPO at a price equivalent to $4.86 per share.

Fannie Mae and Freddie Mac have $2 billion at stake in the Stuyvesant Town and Peter Cooper Village debacle in Manhattan — but their former regulator believes they won't be big losers. "They have the most senior piece and they are well positioned," said former Federal Housing Finance Agency director James Lockhart, speaking at the American Securitization Forum conference in Washington. The GSEs are investors in commercial mortgage-backed securities that were issued in 2006 when Tishman Speyer Properties and BlackRock Realty acquired the 11,000-unit apartment complex for $5.4 billion. (At the time of purchase, Mr. Lockhart was the FHFA chief and the GSEs were not wards of the government.) On Jan. 25, Tishman and BlackRock defaulted on $4.4 billion in loans, including $3 billion in senior mortgages. The properties are now valued at $2 billion. "Obviously, that was a bubble transaction. It will have to be unscrambled and it is going to be very messy," said Mr. Lockhart, who is now vice-chairman of WL Ross & Co., a New York vulture fund that specializes in distressed mortgage-related investments.

Flagstar Bancorp, one of the nation's top ranked wholesaler funders, reported a fourth quarter loss of $71.6 million, an improved showing over the prior quarter and the same period last year. Meanwhile, the Michigan-based lender originated $6.9 billion of home mortgages in the fourth quarter, a 28% increase in fundings from Q4 2008. For the full year, originations rose 15% to $32.4 billion. Even though its quarterly earnings improved, it lost $514 million for the full year, compared to a $275 million loss the prior year. At yearend Flagstar serviced $56.5 billion in loans. (It is currently shopping around a $10 billion package of receivables.) At year end it held $659 million of non-performing residential mortgage loans, a 51% increase from 2008. It also owns $338 in nonperforming commercial mortgages, a 67% spike from 2008.

Farmer Mac raised $250 million in additional capital in a private offering of shares of non-cumulative perpetual preferred stock of Farmer Mac II LLC, a Delaware limited liability company in which it owns all of the common equity. Farmer Mac II LLC is now operating the Farmer Mac II business that has operated since 1992 purchasing and holding U.S. Department of Agriculture-guaranteed loans. Farmer Mac is using the proceeds from the sale to repurchase and retire $150 million of Farmer Mac's currently outstanding Series B preferred stock and to further enhance its regulatory capital position. Farmer Mac's president and chief executive Michael Gerber said, "Today's transaction further strengthens Farmer Mac's financial position in support of our core business. It provides Farmer Mac with additional capital at a significantly lower cost."

Fitch Ratings has downgraded 25 preferred securities ratings among its rated U.S. real estate investment trusts following revisions to its global rating criteria for hybrid securities. The downgrades are one notch from current levels for the affected REITs. The issuer default ratings and senior debt ratings for each of these REITs are unaffected. The new criteria apply to hybrid instruments issued by companies in all sectors including banks, insurers, nonbank financial institutions and all nonfinancial corporate entities. The new criteria also provide guidance on how Fitch will rate and notch hybrid securities at different stages in the "life cycle" of an instrument.

Kuwaiti investors are backing a new public commercial real estate investment company in New York called Eastbridge Al Mal Holdings Ltd. The new company, which will have offices in Dubai and Kuwait as well as New York, will seek to invest in what it describes as high-quality income-producing properties in major U.S. cities. It plans to invest through local operating partners who requirement additional equity capital for direct real estate investments, debt and securities. Rick H. Singer is the company's chief executive officer in charge of all real estate entities and a founding partner. Mr. Singer was at one point the head of global real estate at Wall Street firm Salomon Brothers for 10 years and held senior leadership positions at several other investment firms. The company will initially be focused on the energy sector.

All banks and thrifts are having problems with commercial real estate loans, not just small community banks, according to FDIC chairman Sheila Bair. "Despite what you may be hearing, CRE credit problems are affecting big and small banks alike," the Federal Deposit Insurance Corp. chairman said in a prepared speech delivered at a Commercial Mortgage Securities Association conference in Washington, D.C. As of Sept. 30, FDIC-insured institutions held $1.3 trillion CRE and multifamily mortgages — nearly 18% of total loans. And $44.8 billion are classified as noncurrent (90-days or more past due or considered uncollectible). Banks and thrifts hold another $500 million in construction and development loans and 15% of these are noncurrent. "The annualized net charge-off rate of 6% on C&D loans in the third quarter significantly exceeds the highest rate of the last crisis, which was about 4%," Ms. Bair said. FDIC expects delinquencies and charge-offs will move higher in the coming quarters.