Capmark's Cause of Death? Why Commercial Real Estate Of Course
Nothing to see here, move along now. Everything is under control. The Dow is surging. Profits are up. JP Morgan made a shit ton of money. The stimulus saved jobs.
But oh shit, what's this?
Capmark Financial Group Inc., the lender owned by Goldman Sachs Group Inc. and KKR & Co., among other companies, filed for bankruptcy protection after posting a second-quarter loss of about $1.6 billion.
The company listed consolidated debt of $21 billion and consolidated assets of $20.1 billion as of June 30, according to Chapter 11 documents filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware. Forty-three affiliates also sought protection.
Capmark is one of the largest U.S. commercial real estate finance companies, with more than $10 billion in originations, according to Moody’s Investors Service. The company, formerly known as GMAC Commercial Holding Corp., services more than $360 billion of debt.
The Horsham, Pennsylvania-based company has struggled as the default rate on commercial mortgages held by U.S. banks more than doubled to the highest since 1994. Capmark said on Sept. 2 that it may reorganize under Chapter 11 of the bankruptcy code.
“All the businesses will be saved and continue with Capmark or will be sold as going concerns for full value,” attorney Martin Bienenstock, a partner at Dewey & LeBoeuf LLC in New York, which is handling the bankruptcy case, said in an e- mail.
WSJ's Real Time Economics summed up the Fed's thoughts on CRE:
Real estate has been a flashpoint of the crisis from the beginning, and though some signs of residential stabilization have emerged, the Federal Reserve’s latest beige book raises some worrying caveats about recovery and shows Fed officials remain concerned about the impact of commercial real estate.
Fed officials and bank regulators have become increasingly concerned about commercial real estate. In the minutes to their September meeting Fed officials noted their concerns, while FDIC Chairman Sheila Bair has expressed worries that commercial loans could topple more financial institutions.
“Commercial real estate was reported to be one of the weakest sectors” across all districts, the beige book reported. “An inability to obtain credit was often cited as a problem for businesses that wanted to purchase or build space. High vacancy rates were noted as a key concern especially for landlords who were not offering concessions.”
The only strength in the sector appeared to come from federal projects funded by the stimulus. The Cleveland, Chicago, Minneapolis and Dallas districts all reported an increase in public nonresidential activity. However, even public commercial real estate had its drags, as cash-strapped state and local governments looked to cut back programs.
Call me crazy but that sounds like a bit of a problem.