It’s not really news that commercial real estate is under severe strain. The question for banks is whether it stays merely bad or gets horrendous and horrible. While some banks have marked down their CRE portfolio considerably, others are still holding optimistic marks, hoping that the recession will conform to old models.
Here’s another sign of just how bad things are getting:
FT: Special servicers, companies that collect payments from borrowers in distress on behalf of mortgage bond investors, reported $23.7bn of mortgages under their care at the end of the first quarter, according to Fitch Ratings.
That was five times higher than the $4.6bn of mortgages needing special servicing at the end of 2007. Servicers experienced an almost 50 per cent increase in the volume of distressed commercial mortgages in the first quarter alone.
Still there’s a seeming disconnect between the onslaught of bad numbers, the collapse of General Growth Properties and the action in various publicly traded commercial real estate entities.
As Zero Hedge has been pointing out, a number of REITs have been busily trying to raise capital in order to buffer up during the mini boom happening in the stock market right now. It looks like a classic case of the smart money knowing when to sell shares to, well, the less smart money.