Bonds backed by commercial mortgages were hit Tuesday after Standard & Poor’s downgraded several CMBS issues.
The CMBX Series 5, the most recent derivatives index based on bonds backed by commercial mortgages, was down by three points to 72 cents on the dollar, according to Derrick Wulf, a senior portfolio manager at Dwight Asset Management in Burlington, Vt.
S&P cut several of these securities because of a recent change in its rating methodology.
“They have put a lot of bonds on watch for downgrade after updating their methodology, and this is making the market nervous,” Wulf said.
The GG-10 A4, a benchmark bond, has been downgraded multiple notches from the pristine triple-A to just a notch above junk status at triple-B minus, Wulf said. This comes while two other rating agencies, Moody’s Investors Service and Fitch Ratings, haven’t cut their ratings on the bond.
Wulf said the bond is trading about 100 basis points wider than its close of 675 basis points on Monday.
S&P intends to “roll out the results of their new methodology over the next three to six months,” said Darrell Wheeler, head of securitization research at Citigroup, in a note to clients.
Lastly, Forbes posted an analysis of consumer spending, concluding that there will be no real economic activity until people go shopping again.
Here are some other news and notes on retail and retail real estate from around the Web today.
Goldman Sach’s earnings report today revealed that commercial real estate remains a concern for banks. Goldman had $700 million in losses on commercial real estate. Updated: Chris Rodriguez from RetailChatr points out that Goldman’s losses were actually $1.2 billion once you factor in $500 million in real estate principal investments. The $700 million was on its commercial mortgages.As one analyst put it, “This is the lingering-write-down asset class. There is a fair amount of pain to be had across the industry.”
According to Bloomberg, Leon Black’s Apollo Global Management LLC plans to raise $600 million in a public offering of shares in its only commercial property investment fund. The company, Apollo Commercial Real Estate Finance Inc., will be organized as a REIT and will focus on properties in major cities. It is targeting distressed real estate.
We posted our weekly news analysis and looked at how commercial real estate lenders are willing to extend and pretend rather than foreclose on troubled assets.
John Dizard talks about a novel solution for the commercial property sector in a Financial Times column.
Alan Weiss, who was a partner in Case Shiller Weiss, the firm that developed the Case Shiller index, believes he and his partners have developed one of the answers to how the property world gets re-equitised. Essentially, they intend to float unlevered real estate investment trusts, specialised initially in multi-family rental housing, that will pay dividends to the public, not interest and principal repayments to the lenders.
What makes this economic, he says, is that “debt has gotten so expensive that equity is competitive. While equity markets have fallen, they have continued to work while the debt markets have shut down.”
On a monthly basis, retail sales increased 0.6% from May to June (seasonally adjusted), and sales are off 9.6% from June 2008 (retail ex food services decreased 10.3%). Excluding autos and gas, retail sales fell again in June.
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $342.1 billion, an increase of 0.6 percent (±0.5%) from the previous month, but 9.0 percent (±0.7%) below June 2008. Total sales for the April through June 2009 period were down 9.6 percent (±0.5%) from the same period a year ago. The April to May 2009 percent change was unrevised from 0.5 percent (±0.3%).
Retail trade sales were up 0.8 percent (±0.7%) from May 2009, but 10.0 percent (±0.7%) below last year. Gasoline stations sales were down 31.6 percent (±1.5%) from June 2008 and motor vehicle and parts dealers sales were down 14.1 percent (±2.5%) from last year.
Calculated Risk’s monthly take is here. I’ve copied the monthly graph of year-over-year comparisons the blog produces below.
