No wonder the
original plan what plan? was only three pages long. It turns out that
there was no plan. When I heard the news that Treasury had reversed course on the Troubled Asset Recovery component of the Troubled Asset Recovery Plan, that and writing an article with the above title were the first things that popped into my head. Sadly, those two things were also all I could think of while I was cowering under my desk, without food and water, waiting for it all to end. REITs of course got absolutely crushed, and now it looks like many REITs are now headed for the dreaded ".BB" designation. I keep hoping in vain to someday drown in dividends, but that's unlikely to happen if REITs are swimming in the Pink (sheets that is).
The story of the insanity in commercial mortgages that ensued after the about face now been covered everywhere, including the
Wall Street Journal, the
Washington Post, and Bloomberg, which was the most strident in
blaming it all on Paulson. Sadly, spreading blame won't help; only spreading money will (and maybe some Prozac too, if I could only afford to see the doctor).
What follows is a relatively cogent article consisting of the most juicy bits from those three above articles.
"A lot of very foolish loans were originated between 2005 and 2007, and many of those loans begin to mature in 2010," said Mike Kirby, director of research at Green Street Advisors, a commercial real estate research firm. "You have a significant amount of debt maturing at that time and yet you don't have a market to replace that debt."
The price of commercial real-estate-debt securities has fallen so far that it has set off a debate among investors as to whether now is the time to get back into the market. Triple-A commercial mortgage-backed securities are trading at roughly 70 cents on the dollar, meaning they would produce a 20% return if held to term.
The default rate on commercial mortgages remains near its historical low, although it is increasing. Overall, the number of commercial mortgages packaged into securities that are 30 days or more past due rose to 0.64% in October from 0.39% at the end of last year. That is the highest delinquency rate in two years but still far from the kind of carnage that occurred during the commercial real-estate collapse of the early 1990s.
