Wednesday, November 26, 2008

Commercial Real Estate FINALLY tanking...

In March I knew that problems in the residential real estate market would, at some point, pour into the commercial real estate market. Yet some brighter folks continued to "LEVERAGE UP" and appear to be getting burned. It took longer than I thought to be honest. I am going to look for some CMBS statistics during that period.

Last week the MBS market for commercial real estate took a beating and really took a toll on a few funds.

From the WSJ:

Last week's record plunge of the commercial real-estate securities market has claimed its first major casualty: a $1.5 billion fund with investors including Texas billionaire H. Ross Perot and members of his family, said people familiar with the matter.

Other hedge funds and money-management firms that invested in real-estate debt face the potential for more margin calls. These include a $2 billion fund managed by Petra Capital Management LLC, a firm founded by Andy Stone, one of the founders of the commercial-mortgage securities business. Guggenheim Partners LLC is someone being watched closely as well.

Of interest to Dallas residents, "Parkcentral Global Hub Ltd., the fund overseen by Parkcentral Capital Management LP, a Plano, Texas, firm controlled by the Perot family, peaked this year at $2.5 billion in assets. It used borrowed money to amplify its bets, said people familiar with the matter, and began dumping assets last week.

"That leverage helped hasten the fund's meltdown as the commercial mortgage-backed securities, or CMBS, market cratered last week, and the borrowings also could leave lenders with tens of millions of dollars in losses, the people said."

"A Parkcentral spokesman Tuesday confirmed that the fund has been forced to liquidate to pay off creditors, but he declined to elaborate. He blamed the "unprecedented upheaval of the capital markets in general and the freezing of credit markets in particular."

Dan Ross

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