kent nickell
Well-known member
Commercial real estate is in as bad if not worse shape than residential real estate. We are propping up residential real estate by trying to keep mortgage rates down by the Fed printing money to buy Treasuries and by allowing banks not to use mark to market accounting (ie allowing them not to realistically price their legacy loans which in fact are getting worse instead of better)
Now this is an attempt to prop up commercial real estate by corrupting the rating system (just the opposite of the necessary reform of the rating system needed to restore confidence) Some raters think commercial real estate should be downgraded but this would force insurance companies to come to terms with the problem and sell these assets into the market. Instead everyone seems to want to believe that things will get better so they want a new rating agency to say everything is fine so similar to the banks they can just ignore these issues. Since the downside pressues are large this is just reflating the eventual bubble which will pop loud. Probably better to start letting some air out of it now....
http://www.reuters.com/article/bondsNews/idUSN1151302620090611
Realpoint seeks to disarm S&P CMBS rating blows
Thu Jun 11, 2009
By Al YoonNEW YORK, June 11 (Reuters) - U.S. credit rating company Realpoint on Thursday said insurers may soon be allowed to use its commercial mortgage bond ratings and preserve capital if rival Standard & Poor's moves to slash its designations.
The National Association of Insurance Commissioners is expected to approve the company as a source of ratings for the commercial mortgage-backed securities held by insurers, who are among the biggest investors in the $700 billion market for debt backed by office, retail and apartment buildings, Realpoint Chief Executive Rob Dobilas told Reuters.
The NAIC move would give insurers more flexibility in choosing ratings that determine their capital levels and avoid forced selling of the assets if S&P adopts more conservative models. Insurers can use the middle rating, if there are three, according to Dobilas.
S&P shocked the the CMBS market last week by advising that its new models, if adopted, would likely prompt ratings cuts on 95 percent of top bonds issued during the peak of the real estate cycle in 2007 and 85 percent of CMBS from 2006. S&P is mulling responses from a formal request for comment.
Some 50 insurers have contacted Horsham, Pennsylvania-based Realpoint over the last few days, saying, "you guys need to get approved" by the NAIC, Dobilas said.
"Realpoint acts as a trump card to any action that S&P takes," he said. "We don't perceive any problem" getting approved by the NAIC, he added.
The NAIC, which represents all of U.S. state and territory insurance regulators, affirmed that Realpoint's application has been received by NAIC's Securities and Valuations Office.
Analysts fear the cuts by S&P would cause a wave of selling by investors, including insurers, who are limited to AAA-rated securities. Downgrades are also seen as a threat to a Federal Reserve program to boost lending in U.S. commercial real estate as the central bank currently requires bonds eligible for the program carry only AAA ratings.
But the shaky U.S. economy is increasingly driving forecasts for commercial property, which will probably get worse before it improves, according to many attendees of a Commercial Mortgage Securities Association conference this week. Commercial property typically lags by a year trends in residential real estate, which is in its worst downturn since the Great Depression.
NAIC approval of Realpoint "could be a short-term capital relief for insurance companies" if S&P cuts ratings, said Scott Buchta, a strategist at Guggenheim Capital Markets in Chicago. "Longer term, should fundamentals in commercial real estate decline further, others may follow S&P."
Realpoint doesn't see "massive" downgrades of top-tier CMBS, D
obilas said.
Now this is an attempt to prop up commercial real estate by corrupting the rating system (just the opposite of the necessary reform of the rating system needed to restore confidence) Some raters think commercial real estate should be downgraded but this would force insurance companies to come to terms with the problem and sell these assets into the market. Instead everyone seems to want to believe that things will get better so they want a new rating agency to say everything is fine so similar to the banks they can just ignore these issues. Since the downside pressues are large this is just reflating the eventual bubble which will pop loud. Probably better to start letting some air out of it now....
http://www.reuters.com/article/bondsNews/idUSN1151302620090611
Realpoint seeks to disarm S&P CMBS rating blows
Thu Jun 11, 2009
By Al YoonNEW YORK, June 11 (Reuters) - U.S. credit rating company Realpoint on Thursday said insurers may soon be allowed to use its commercial mortgage bond ratings and preserve capital if rival Standard & Poor's moves to slash its designations.
The National Association of Insurance Commissioners is expected to approve the company as a source of ratings for the commercial mortgage-backed securities held by insurers, who are among the biggest investors in the $700 billion market for debt backed by office, retail and apartment buildings, Realpoint Chief Executive Rob Dobilas told Reuters.
The NAIC move would give insurers more flexibility in choosing ratings that determine their capital levels and avoid forced selling of the assets if S&P adopts more conservative models. Insurers can use the middle rating, if there are three, according to Dobilas.
S&P shocked the the CMBS market last week by advising that its new models, if adopted, would likely prompt ratings cuts on 95 percent of top bonds issued during the peak of the real estate cycle in 2007 and 85 percent of CMBS from 2006. S&P is mulling responses from a formal request for comment.
Some 50 insurers have contacted Horsham, Pennsylvania-based Realpoint over the last few days, saying, "you guys need to get approved" by the NAIC, Dobilas said.
"Realpoint acts as a trump card to any action that S&P takes," he said. "We don't perceive any problem" getting approved by the NAIC, he added.
The NAIC, which represents all of U.S. state and territory insurance regulators, affirmed that Realpoint's application has been received by NAIC's Securities and Valuations Office.
Analysts fear the cuts by S&P would cause a wave of selling by investors, including insurers, who are limited to AAA-rated securities. Downgrades are also seen as a threat to a Federal Reserve program to boost lending in U.S. commercial real estate as the central bank currently requires bonds eligible for the program carry only AAA ratings.
But the shaky U.S. economy is increasingly driving forecasts for commercial property, which will probably get worse before it improves, according to many attendees of a Commercial Mortgage Securities Association conference this week. Commercial property typically lags by a year trends in residential real estate, which is in its worst downturn since the Great Depression.
NAIC approval of Realpoint "could be a short-term capital relief for insurance companies" if S&P cuts ratings, said Scott Buchta, a strategist at Guggenheim Capital Markets in Chicago. "Longer term, should fundamentals in commercial real estate decline further, others may follow S&P."
Realpoint doesn't see "massive" downgrades of top-tier CMBS, D
obilas said.