Mortgage Observer

Carve-outs: Bad-boy Guarantees Have Borrowers Getting Spanked

Jonathan Mechanic

So-called bad-boy guarantees have recently created headaches for borrowers when CMBS loans go bad, industry experts told Mortgage Observer. A number of recent cases across the nation have interpreted the guarantees, which prohibit certain borrower activity, like “indebtedness,” and “insolvency,” to mean that the principals of a borrowing entity are personally liable for losses in the event of default—a shocking development for CMBS borrowers and lenders alike.

It began with a 2011 case, Wells Fargo vs. Cherryland Mall, which rose to the highest court in Michigan. A provision that the borrower would “not become insolvent” was found to constitute a personal guarantee by the principal of the development company, which had defaulted on a CMBS loan, said Sam Lee of Duval & Stachenfeld. “It created a ripple effect,” in the industry, he said, because that “innocuous phrase,” one type of bad-boy clause, was boilerplate in many CMBS loan documents at the time. (The ruling by the Michigan court was actually later overturned by the state legislature, in an unprecedented move). Read More

Mortgage Observer

CMBS: Is Underwriting for CMBS Back to Pre-Crisis Levels?


With the country’s CMBS market bouncing back to pre-crisis levels, industry observers are voicing growing concerns about a deterioration in underwriting on securitized commercial debt deals.

The CMBS underwriting environment has substantially declined over the past three years and is now akin to where it was in late 2005 and early 2006, according to several rating agencies, including Fitch Ratings and Moody’s Investors Service. Underwriting on such deals continues to weaken, in large part, due to rising competition between lenders to issue securitized debt, a Fitch report published this summer said. Read More

Mortgage Observer

High Spreads in $1B Atlantis CMBS Issuance


The $1 billion Atlantis CMBS offering, collateralized by a single, 245-acre, 2,917-room resort property located in Paradise Island, Bahamas, exhibits higher than normal spreads for its fixed-rate AAA-class certificates, due in part to corresponding risk, Mortgage Observer Weekly has learned.

BREF ONE LLC’s Series A, a fund affiliated with a subsidiary of Brookfield Asset Management, sponsored the $1 billion mortgage for the resort, according to a Standard & Poor’s pre-sales report, released Aug. 4. The loan, divided into a $650 million fixed-rate and $350 million floating-rate component, was provided by Deutsche BankMorgan Stanley and Citigroup. Read More

Mortgage Observer

Banks Most Active Lenders in Q1, Bolstered by Bridge Loans

Banks are on top. Approximately 42 percent of total commercial lending nationally in the first quarter of 2014 was originated by banks, according to CBRE’s Capital Markets U.S. Lender Forum June 2014 report. Their market share was up from around 26 percent for the whole of 2013, the report showed. Life companies dominated in the first quarter of last year.

Banks have benefited from increased bridge lending, a sector that was up 85 percent from the same period last year and totaled 11 percent of total loans closed in the first quarter of this year, according to the report. Read More

Mortgage Observer

Citigroup Securitizing $1.45B Loan to SL Green

388 Greenwich Street

Citigroup has received preliminary ratings for the issuance of CMBS secured by a first mortgage loan of $1.45 billion, according to a pre-sales report from Morningstar Credit Rating.

The floating-rate mortgage loan was recently provided by a group led by Citi to the company’s current landlord at 388-390 Greenwich Street in Tribeca, SL Green Realty, for the purpose of buying out Canadian pension fund Ivanhoe Cambridge’s joint ownership in the buildings, as Mortgage Observer previously reported.  The seven-year mortgage was provided by a lending group that included Bank of China, Wells Fargo, and Barclays, according to a statement from SL Green when the loan closed, last month.  Read More

Mortgage Observer

The Changing Face of Retail

Sam Chandan

The way we shop is changing. The reasons are varied: our unfolding economic circumstances, the ever-increasing ease of online commerce and a shifting sense of what the retail experience should offer. For investors and lenders alike, limited foresight into the sector’s evolution implies unique risks. It also weighs heavily on the outlook for billions of dollars in legacy CMBS loans, maturing over the next several years. Those loans are overweighted to the small retail assets that have traditionally been the bread and butter of securitization. Read More

Mortgage Observer

Retail Lending Gets Easier—Thanks in No Small Part to CMBS

Retail lending is on the rise

It’s loan shopping season for shopping center owners. Retail landlords around the country are increasingly turning to commercial mortgage-backed securities to finance properties in secondary markets as an alternative to traditional loans, industry sources told Mortgage Observer.

While banks and insurance companies that provide traditional commercial real estate financing are targeting primary markets like New York and San Francisco, focusing on prime properties and the strong multifamily sector, investors who are hungry for returns are willing to dig into CMBS deals on less desirable properties with less prestigious retail tenants and higher leverage, sources said. Read More

Mortgage Observer

Expiration of Federal Terrorism Insurance Law Sparks Fears

With the expiration of the federal Terrorism Risk Insurance Program Reauthorization Act on the horizon at the end of the year, industry reports point to liquidity risks. In the event the legislation is scaled back or even eliminated, commercial real estate costs would likely soar, the reports say.

“Demand for terrorism insurance remains strong and the existence of TRIPRA plays a key role in making coverage available and affordable,” said a report issued last month from Marsh & McLennan, a risk management firm. The report says that fears over TRIPRA’s expiration have already made terrorism insurance scarce, as insurers flee the sector thinking that the economics won’t make sense without the government’s involvement. Read More

Mortgage Observer

Natixis and UC Funds Lend $27M to Convert Historic Baltimore Office To Apartments

Equitable Building in Baltimore

Long Island-based JK Equities closed $27 million in construction funds from Natixis Global Asset Management and Boston-based UC Funds, to redevelop a historic downtown Baltimore building, Mortgage Observer has learned. The three-year, 4.91 percent loan closed earlier this week.

The Equitable Building, at 10 North Calvert Street in Baltimore, dates to 1891 and was acquired by JK last November for $7.2 million, according to published reports. The loan proceeds helped fund the acquisition and will also help with the $32 million bill to renovate the property, currently an office building, into 188 market rate residential units.The redevelopment will also include 25,000 square feet of retail, said Jerry Karlik, the president of JK Equities. Read More

Mortgage Observer

MBA Report Shows Increased Lending Across All Property Types in 2013


Commercial mortgage origination exceeded expectations in 2013, with $358 billion in loans on commercial and multifamily properties closed, according to the annual origination summation report from the Mortgage Bankers Association.

The report, unveiled earlier this week, showed banks invested $100.5 billion last year–28 percent of the annual volume–while CMBS, CDO and ABS issuers invested $79.8 million, which accounted for 22 percent of the overall volume amount. Life insurance companies and pension funds did $60.2 billion in deals—17 percent of the year’s total. Read More

Mortgage Observer

Trepp Launches Bond Pricing Product TreppTrade 

Trepp launched TreppTrade today

Commercial real estate information company Trepp launched a new tool which tracks bond cashflow and price yield calculations, called TreppTrade Quick Analysis today, Mortgage Observer has exclusively learned. TreppTrade is accessible via as well as proprietary trading and risk management platforms used by the broker dealer community, according to a representative for Trepp. Read More