Commercial Property Blues ~ Steve Blitz Morning Notes
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Wednesday, July 22, 2009

Commercial Property Blues

Commercial real estate is growing problem and Bernanke noted it in today's testimony -- the Q&A portion. While the underwriting abuses in residential mortgages did not travel to the commercial market, easy credit did create lax lending standards and the more recent vintages of CMBS are the ones with the rapidly accelerating default rates. To give a sense of how the market is pricing all this, the chart below, courtesy of Barclay Capital, shows the spread to LIBOR for the most "protected" CMBS tranche -- AAA Super-Duper -- and the spread to LIBOR for BBB Industrials. Industrial spreads have improved, commercial mortgage spreads have not.

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