The potential CMBS disaster

Commercial Mortgage Backed securities (CMBS) are backed by mortgages on commercial properties (like office buildings, apartment complexes, retail malls) rather than residential real estate. This $800 Billion market has over $20 Billion of loans in 'special servicing' (indicating a potential default). If the economy continues to weaken, we may see over $40 Billion in delinquent CMBS loans this year.

President Obama is trying to halt the Great Recession of 2009 by a combination of fiscal and monetary policy. The easing of the 'mark-to-market' accounting rules will help ease pressure on financial institutions who are very active in this market (JP Morgan, Morgan Stanley, Hartford Insurance). The basis for the payment of commercial mortgage loans is the level of occupancy of the project and the timely payment of rents by it's tenants.

Hopefully, President Obama's economic stimulus plan will work and halt the potential CMBS disaster.

Random thoughts.....The market has been up for four straight weeks...a 50% retracement of the decline of the DOW JONES from 11,500 would be 8,500-8,900...a close above 9,000 in April would be extremely bullish for 2009....it seems that the market will probably trade between 7600 and 8900 for the next few months...we know that the first Quarter earnings reports will be disastrous.....look for an improvement in Q2..

ps...the John Hancock office building shown in the picture above just sold for $660 Million ...about 50% of its' value in 2006 ($1.3B)