Commercial Mortgage-Backed Securities Are Losing Value
Is the commercial mortgage-backed securities market the next shoe to drop? The U.S. economy is suffering serious financial stress as a result of complex derivative credit securities and inadequate risk analysis. While the federal government seems aggressively intent on providing enough liquidity to the banking system to avoid a financial meltdown and eventually regain control of the markets, can they accomplish it in time?
According to a March 19, 2008 article in the Co-Star Group Real Estate Newsletter, Wall Street’s wild swings and the turmoil in the credit markets are confounding the commercial real estate industry. In recent weeks, the CMBX indexes that follow commercial mortgage-backed securities suggests that such securities have lost roughly 20% of their value.
This herd mentality of the capital markets has spilled over into the commercial real estate market even though industry insiders say that the fundamentals of the industry are solid. They contend that the commercial real estate market is the proverbial baby that has been thrown out with the bath water even though fundamentals are strong. If the capital markets can be straightened out, insiders hope there will be a sharp snap back in the commercial real estate market. However, the longer it takes for this to happen, the greater chance that the recession will worsen and commercial fundamentals will start deteriorating.
The most optimistic investors, such as hedge funds and investment banks, were first to get hit with losses in the subprime securities market. It is apparent that the commercial mortgage-backed securities (“CMBS”) market is at the tipping point where substantial losses could occur. According to Marc Thompson, senior vice president of Bank of the West, commercial bank lending dropped to $9.2 billion in third quarter of last year from $37 billion in the second quarter because of the aversion to risk.
The warning signs follow the same line of logic as observed last year in the subprime market collapse. Investors are well advised to monitor the situation.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing individual and institutional investors regarding their subprime investment problems. For further information, please contact us.
