Commercial Mortgage News

Apartment Investment & Management Co. has decided to focus on reducing refunding risk by accelerating refinancing of property loans maturing prior to 2012, based on the results of its recently released third-quarter activity. According to the Denver-based real estate investment manager's earnings statement, AIMCO's share of property debt maturing during 2009 through 2011 was $221.3 million at the start of the quarter. During thev third quarter, through refinancing, repayment and property sales, AIMCO reduced these maturities by $36.8 million. As of Sept. 30, the balance of property debt maturing through 2011 totaled $184.5 million in nine loans. Of these loans, refunding risk has since been eliminated on all but four loans totaling $164 million, which the company expects to be refinanced at their maturity in 2011.

Los Angeles-based real estate company Thomas Properties Group postponed its previously announced public offering of 22 million shares of common stock blaming unfavorable market conditions. The offering was originally announced earlier this week. According to the company's president and CEO James A. Thomas, the reason for postponing the offering is because of the unfavorable current market conditions. "The company's management team and board of directors do not consider the current market price of the company's common stock to be reflective of its inherent value," he said. Thomas Properties Group owns, acquires, develops and manages primarily office, as well as mixed-use and residential properties.

Fitch Ratings has placed 58 classes from 13 commercial real estate collateralized debt obligations containing a concentration of 2005 vintage commercial mortgage-backed securities on Rating Watch Negative. The affected transactions have greater than 10% exposure to 2005 vintage CMBS that are currently on Rating Watch Negative by Fitch. According to Fitch, the magnitude of the negative rating actions on the 2005 vintage CMBS is expected to be less significant than the 2006-2008 vintage CMBS rating downgrades. Nevertheless, the expected CMBS downgrades still exceed Fitch's expectation when the downgrade actions were taken on these CRE CDO bonds earlier this year following the implementation of revised criteria. On Oct. 22, Fitch placed 247 classes from 22 fixed-rate CMBS conduit transactions from the 2005 vintage on Rating Watch Negative, with the expectation that the majority of the classes will be downgraded one category when the Rating Watch Negative is resolved.

Mission Capital Advisors LLC is marketing a portfolio of commercial mortgages with an outstanding balance of approximately $120 million. The portfolio consists of a mix of performing, subperforming and nonperforming loans secured primarily by multifamily, retail, office and industrial collateral located in New York and northern New Jersey. Will Sledge, managing director at Mission Capital Advisors, said, "Offerings of this type in the New York/New Jersey market have been few and far between. We believe the transaction will be well received." Mission Capital is soliciting indicative bids on Nov. 18 and final bids on Dec. 10. Mission Capital, in conjunction with the seller, has prepared a comprehensive array of due diligence materials that is available to prospective bidders who execute confidentiality agreements. A detailed offering memorandum and confidentiality agreement can be found at www.missioncap.com/deals.

Federal regulators have issued guidance that encourages banks to refinance or restructure commercial real estate loans despite declines in property values and rents. "The financial regulators recognize that prudent loan workouts are often in the best interest of both financial institutions and borrowers, particularly during difficult economic conditions," according to a policy statement issued by the Federal Financial Institutions Examination Council. The policy statement provides examples of prudent CRE workouts. It also stresses the importance of the borrower's willingness and capacity to repay the mortgage. The guidance tells examiners not to adversely classify prudent workouts, even in cases where the borrower is associated with an industry that is facing financial difficulties. CRE loans that are "renewed or restructured in accordance with prudent underwriting standards should not be adversely classified or criticized unless well-defined weaknesses exist that jeopardize repayment," the guidance says.

As the bank earnings season starts to wind down, credit rating firm DBRS said the results for the most part show a weak quarter. "Despite the improvement in financial markets and some promising signs in housing markets, DBRS still expects that mounting job losses, the weak economy and the sustained pressure of asset quality deterioration will keep bank earnings weak at least into the middle of 2010. This economic pressure is falling more heavily in some regions of the country, especially where housing markets and real estate activity collapsed and remain depressed," a report from the company said. Nonperforming loans are increasing, but at a slower pace. Like many others, the Chicago firm is projecting commercial real estate as the next hot spot. CRE portfolios have held up well except for construction loans. But higher vacancies, lower rents and depressed valuations will have an impact, as the weakness in the economy feeds through to demand for commercial space. "CRE is likely to be the weak link in a bank earnings recovery," DBRS said. The report also noted that mortgage banking income in general was lower when compared with the second quarter of this year.

Michael Brennan, co-founder and former president and CEO of First Industrial Realty Trust, has formed Brennan Investment Group LLC, a new Chicago-based industrial real estate investment firm. BIG will opportunistically acquire, develop and operate industrial properties in select major metropolitan markets throughout the United States. The firm's managing principals will co-invest with private and institutional capital, pursuing single asset and portfolio acquisitions, including acquisitions of debt. "We established Brennan Investment Group at one of the most opportune periods the industrial real estate market has ever seen," said Mr. Brennan, who will serve as chairman and managing principal of BIG. "The industrial real estate sector is a large, stable and diversified investment class offering a compelling opportunity for both current income and appreciation."

The Small Business Administration is creating a secondary market guarantee program for loans originated in its 504 Certified Development Co. program. A 504 CDC loan can be used to purchase real estate or other fixed assets related to a small business' expansion. It involves a 50% loan-to-value first mortgage provided by a private commercial lender without a government guarantee; a 40% second mortgage loan made by a CDC having the government guarantee; and a 10% borrower equity investment. The new program would encourage sales into the secondary market of the first mortgage portion and is funded through the American Recovery and Reinvestment Act. SBA said the recession has caused a significant decline in secondary market activity for the 504 first mortgage loans. Under the program, portions of eligible 504 first mortgages pooled by originators or broker dealers could be sold with an SBA guarantee to third-party investors in the secondary market. Lenders will retain at least 15% of each individual loan, pool originators will assume 5% of the risk, and the SBA will guarantee the remaining 80%. To be eligible to be included in a pool, the first mortgage must be associated with a 504 loan disbursed on or after Feb. 17, 2009. The program will be in place until Feb. 16, 2011, or until $3 billion in new pools are created, whichever occurs first.

Troubled assets that are partially real estate-related continued to affect Deutsche Bank AG to some extent in the third quarter but the company as a whole was nevertheless extremely profitable during the period. Deutsche Bank's problem loans increased slightly to 8.7 billion euros ($12.9 billion) in the quarter. Standard & Poor's analysts said the company's losses from erosion in commercial real estate loans and other problem assets are expected to persist into 2011. They left Deutsche Bank's ratings unchanged after reviewing its earnings for the period. Deutsche Bank generated 1.4 billion euros ($2.1 billion) in net income in the third quarter. This was roughly three times the 414 million euros ($615 million) in net income the company generated during the third quarter of last year. The gain in net income largely stemmed from tax benefits.

Evergreen Realty REIT has terminated its prior advisory agreement with Evergreen Realty Advisors and has entered into a new advisory agreement with limited liability company American Spectrum Realty Advisors, a subsidiary of the Houston-based real estate investment and management company American Spectrum Realty Inc. According to American Spectrum, Luke McCarthy and Forbes Burdette have each consensually resigned their positions as members of the board of directors of Evergreen, but will continue to consult with, advise and assist the new board of directors in all REIT matters. William J. Carden and Jonathan T. Brohard of American Spectrum Realty were appointed by the outgoing board of directors to fill vacancies on the Evergreen board. Mr. Carden and Mr. Brohard appointed Morris Cohen to fill the remaining vacancy on the REIT's board and to serve as an independent director to Evergreen. The new board of directors has voted to submit to Evergreen's shareholders for approval a proposal to change the name of Evergreen Realty REIT to American Spectrum REIT I. Pending receipt of such shareholder approval, the board of directors intends to conduct all future REIT business using this new proposed name.