NY Times: Some Fear Commercial Property Loans Will Be Next Stage in Downturn

[marmar]

Some Fear Commercial Property Loans Will Be Next Stage in Downturn

By LOUISE STORY
Published: August 21, 2008



As the value of home mortgages crumbles by the day, Wall Street has hoped that commercial real estate loans would stay clear of the storm.

But bankers believe the headwinds may be shifting after a large apartment complex in Harlem warned last week that it might not be able to make good on a $225 million mortgage payment by September.

A default by the complex, the rent-regulated Riverton Apartments, a 12-building residential development constructed after World War II, would be New York’s largest in the current housing crisis. For Wall Street banks, which hold about $100 billion of commercial mortgage-backed securities, the prospect has fanned new worries that a deterioration of the overall commercial property market could prompt more write-downs in the coming quarter, on top of losses already expected from their distressed mortgage securities holdings.

“The fear is the next shoe to drop may be commercial real estate,” said Jeffrey Harte, a banking analyst at Sandler O’Neil. “When consumer credit goes south, commercial will follow.”

At the end of the second quarter, Deutsche Bank held $25.1 billion worth of commercial mortgage backed securities. Morgan Stanley held $22.1 billion and Citigroup had $19.1 billion.

Lehman Brothers, which has the largest exposure to this type of security, is shopping about $40 billion worth of commercial real estate assets, as well as its entire commercial real estate business. A large part of its portfolio is a high-risk loan known as bridge equity made with Archstone, a metropolitan apartment developer, and most of the rest are floating-rate loans, which are riskier, according to a person who reviewed the offering. .......(more)

The complete piece is at: http://www.nytimes.com/2008/08/22/business/22commercial.html?em