Let's all go buy Euro real estate

The private equity guys are all over this trade. Blackstone put a fund together for mezzanine loans recently. The NJ State pension fund bought in. The fund is targeting RE loans in Europe because the banks can't refinance the loans so Blackstone expects huge yield and expect to reap benefits in foreclosure. Other PE groups are buying up European farm land. It is literally vulture capital at work.

How do we get in on this?

gotta love capitalism

ask obailout to bail them out, easy!

What is an obailout?

Here is the article: http://www.bloomberg.com/news/2012-05-31/moody-s-says-79-of-european-cmbs-went-unpaid-in-first-quarter.html

But its actually "79% of loans packaged into commercial mortgage-backed securities," not sure if that is a meaningful distinction with "79% of all commericial landlords."

Would also welcome thoughts on how to get in on this.

I think there's more here than the article suggests. Commercial loans don't have the same stigma with regard to defaults that individual residential loans have. Frequently this is nothing more than a negotiating tactic to either extend or modify the loan. Commercial transactions are analyzed before and after purchase with this in mind.

So I can put my pile of gelt back under the bed, Riversider?

RS: The thing that is going on here is far more serious than what the article suggests. These companies are constrained and are probably having difficulty paying back the loans. However, the bigger problem is that if they do, they are paying the money back to insolvent banks. So, as a form of structured default, they with hold payment because when they are forced to refinance through hedge fund and private equity, --which will be the only source of funds in the coming two years when most of the loans are coming due -- they will have to refinance at very high rates. The banks they owe the money to now will either be nationalized or defunct. These companies are probably holding onto their capital to prepare for the next round of refinancing.

It is a slow run on the European banks. Who is going to come after them for this money. It is perhaps a lesson we should all heed. Hide your nuts. It is going to get pretty squirrelly out there.

So I can put my pile of gelt back under the bed, Riversider?

Yes, but don't tell anyone.

Have people taken advantage off the exchange rates and the turmoil there?

It's true as one post-er noted that the 79% delinquency rate is for commercial mortgages held by CMBS trusts. So that means the party that is not getting paid back is the bondholders, technically speaking.

The bondholders are the lenders in this arrangement. It's securitization, similiar to the securitization of residential mortgages that blew up the US economy a few years ago.

Who holds the CMBS bonds? Don't know. Probably all the Euro banks hold some CMBS, plus pension funds and life insurance companies. Some hedge funds and private equity funds.

Many US institutions likely hold these bonds as well.

It's true that the borrowers will try to hold out for loan modifications -- maybe get an extension and a better interest rate, maybe even some principal reduction.

I wouldn't be alarmed by this prospect if it were 10% delinquency, like in the US. But it's 79% -- geez, nearly every big mortgage in Europe is not paying back on time. This assumes most big loans are in CMBS, but I don't know for sure. Probably most big loans of recent vintage, for sure.

I'm sure vultures are circling, aggregating capital and putting their scouts on the ground, hoping to snatch up these loans at big discounts to face value. The CMBS trusts will start to liquidate the loans in short order, especially if they have to deal with such a huge flood of delinquency.

I don't know how individual investors can get in on this. Some commercial lender types who are familiar with Europe should put together funds for small investors to try to snatch up some good deals.

I have no experience of Europe beyond Italy in August -- tourism only. Someone with lending experience in Europe would come in handy.

The private equity guys have been on top of this for well over a year. I listened to a pitch for Blackstone capital raising last year that was entirely focussed on this problem. Goldman put Blackstone on their conviction buy list last week for this reason. I'm not sure who else is circling this CMBS drain but there is lots of PE money vying for a piece. Maybe KKR? FIG? I am sure there are many.

>I listened to a pitch for Blackstone capital raising last year that was entirely focussed on this problem

Wow, what diverse interests you have.

A "pitch" has a pitcher and a pitchee.
Apt 23 is now in the game with the big guys.
They like how she reads the news.