C.M.O. 4.28.2009
Credit Market Overview
April 28, 2009
April 28, 2009
As markets turn it is usually worth while to pay attention to the subtle signals that come along with the obvious ones. I’m not sure which category this fits into but I thought it was interesting that on a day where both Nouriel Roubini was speaking and the Milken Institute was holding its annual confab the latter was all over the media and if the former got a sound bite I didn’t see it.
Back when Drexel was getting drummed out of town and Boesky was looking for bail money it was said that one of the criteria for getting invited to a cocktail party in Manhattan was; “If you’re indicted, you’re invited”. Those days are long gone and people have all paid for their market sins but Mr. Milken still has the ability to pull an astounding group of people together as can be seen from the list of speakers he put together for this year’s event.
Not all of the conference was televised but I was able to see the segment on commercial real estate with David Simon CEO of Simon Property Group, Fritz van Paasschen, CEO of Starwood and the man himself, Sam Zell, Chairman and President of Equity Group Investments and the Tribune Company.
Sam didn’t have a lot of positive things to say about the commercial real estate market, or many other things, and much of the negative was the result of the lack of lending going on. Mr. Zell is not alone in his analysis as Dan Fasulo, MD at Real Capital has just authored the Global Capital Trends Report and a good portion of what he has to say is also focused on the commercial property market.
To start Dan reports that “The commercial-sales market as we once knew it is basically nonexistent”. With the bid/ask spread”as wide as it has has been since the early 90’s”. To back these claims up he cites worldwide sales volume of $47BN in 1Q09 which came in at just 1/6th of the level for the same period two years ago. The U.S. portion of that was $9BN; to which Mr. Fasulo adds could have been the amount paid for a single building in the not too distant past.
One of the reasons dollar volumes might not be going up is that the prices paid in the 1st quarter ranged from imperceptible gains to declines in the 40%-50% range. On top of this defaulted commercial mortgages and failed property companies totaled over $55BN in the first quarter, which when added to the properties already in that category brings the total to $153BN. DF doesn’t see things improving all that much as that best he can say is that “we’ve seen a trickle of things picking up just over the past few weeks.” To get that “tickle” Dan has had to keep his eye on cities like London and Paris.
With that said how are the likes of Simon, Paasschen and Zell doing with regard to where their stocks are trading? A year ago at this time the CDS/equity combo for SPG was 105bps/$101.57. The CDS peaked at 910bps on 12/15/2008 but the stock did not hit its nadir until 3/6/2009 at $26.19. Last night’s close was 467bps and $45.74 respectively.
HOT – 150bps/$52.61 a year ago. The CDS/equity combo for HOT looks like what I think the technicians call a double top/bottom depending on whether you’re looking at the CDS or the equity. The stock bottomed initially at $11.44 on 11/20/2008 and the CDS peaked a week or so later at 815bps. The second time around the stock also beat the CDS to the punch but the difference, time-wise, was just a day: $9.52 on 3/6/2009 and 844bps on 3/9/2009 (weekend in between). Last night’s close 515bps and $18.55.
Sam Zell doesn’t own BXP anymore but his sale of 573 properties to Blackstone for $39BN in 2007 will probably stand for a long time as the deal that top ticked the real estate market. The year-ago numbers for BXP are 123bps and $102.90. The low in the CDS came shortly after that on 5/2/2008 at 84bps but the stock had already hit its $105.04 high the day before.
Subsequently the CDS and stock moved sideways for the most part until early September of 2008 when the CDS jumped from 165bps on 9/11/2008 to 820bps on 11/20/2008. The stock has meandered down a touch more slowly but unlike the CDS continued to fall from its $103.15 close on 9/12/2008 until it bottomed recently at $31.49 on March 5th of this year. The combo closed last night at 505bps/$74.02.
And no, Zell still isn’t wearing a tie.
Enjoy the week.
Jim Delaney
Back when Drexel was getting drummed out of town and Boesky was looking for bail money it was said that one of the criteria for getting invited to a cocktail party in Manhattan was; “If you’re indicted, you’re invited”. Those days are long gone and people have all paid for their market sins but Mr. Milken still has the ability to pull an astounding group of people together as can be seen from the list of speakers he put together for this year’s event.
Not all of the conference was televised but I was able to see the segment on commercial real estate with David Simon CEO of Simon Property Group, Fritz van Paasschen, CEO of Starwood and the man himself, Sam Zell, Chairman and President of Equity Group Investments and the Tribune Company.
Sam didn’t have a lot of positive things to say about the commercial real estate market, or many other things, and much of the negative was the result of the lack of lending going on. Mr. Zell is not alone in his analysis as Dan Fasulo, MD at Real Capital has just authored the Global Capital Trends Report and a good portion of what he has to say is also focused on the commercial property market.
To start Dan reports that “The commercial-sales market as we once knew it is basically nonexistent”. With the bid/ask spread”as wide as it has has been since the early 90’s”. To back these claims up he cites worldwide sales volume of $47BN in 1Q09 which came in at just 1/6th of the level for the same period two years ago. The U.S. portion of that was $9BN; to which Mr. Fasulo adds could have been the amount paid for a single building in the not too distant past.
One of the reasons dollar volumes might not be going up is that the prices paid in the 1st quarter ranged from imperceptible gains to declines in the 40%-50% range. On top of this defaulted commercial mortgages and failed property companies totaled over $55BN in the first quarter, which when added to the properties already in that category brings the total to $153BN. DF doesn’t see things improving all that much as that best he can say is that “we’ve seen a trickle of things picking up just over the past few weeks.” To get that “tickle” Dan has had to keep his eye on cities like London and Paris.
With that said how are the likes of Simon, Paasschen and Zell doing with regard to where their stocks are trading? A year ago at this time the CDS/equity combo for SPG was 105bps/$101.57. The CDS peaked at 910bps on 12/15/2008 but the stock did not hit its nadir until 3/6/2009 at $26.19. Last night’s close was 467bps and $45.74 respectively.
HOT – 150bps/$52.61 a year ago. The CDS/equity combo for HOT looks like what I think the technicians call a double top/bottom depending on whether you’re looking at the CDS or the equity. The stock bottomed initially at $11.44 on 11/20/2008 and the CDS peaked a week or so later at 815bps. The second time around the stock also beat the CDS to the punch but the difference, time-wise, was just a day: $9.52 on 3/6/2009 and 844bps on 3/9/2009 (weekend in between). Last night’s close 515bps and $18.55.
Sam Zell doesn’t own BXP anymore but his sale of 573 properties to Blackstone for $39BN in 2007 will probably stand for a long time as the deal that top ticked the real estate market. The year-ago numbers for BXP are 123bps and $102.90. The low in the CDS came shortly after that on 5/2/2008 at 84bps but the stock had already hit its $105.04 high the day before.
Subsequently the CDS and stock moved sideways for the most part until early September of 2008 when the CDS jumped from 165bps on 9/11/2008 to 820bps on 11/20/2008. The stock has meandered down a touch more slowly but unlike the CDS continued to fall from its $103.15 close on 9/12/2008 until it bottomed recently at $31.49 on March 5th of this year. The combo closed last night at 505bps/$74.02.
And no, Zell still isn’t wearing a tie.
Enjoy the week.
Jim Delaney
Labels: CDS, CEC Strategy, correlation, credit, cross asset, equity, Jim Delaney
posted by Jim Delaney at
4:21 AM
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