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Commercial Real Estate continues its decline.  Fitch says:

In essence, the clock is ticking for REITs to maintain adequate liquidity, and because the unsecured bond market remains closed for nearly all issuers, equity REITs have used, and will likely use, a variety of tools at their disposal.

  • Fannie Mae and Freddie Mac financing remains a key source of capital to the multifamily sector; however, when considering whether to obtain this financing, apartment REITs are faced with the challenge of maintaining strong unencumbered asset coverage metrics while weakening liquidity or strengthening liquidity and likely weakening the quality of the unencumbered pool remaining for unsecured bondholders.
  • Many REITs have repurchased unsecured bonds in the open market at discounts to par. While this may be an opportunistic investment opportunity to reduce leverage, such transactions, if large enough, can weaken liquidity if longer dated bonds are repurchased.
  • Many REITs have paid common dividends through a combination of cash and the issuance of new common shares to preserve liquidity, but a dichotomy has emerged whereby many REITs are preserving capital by necessity and others by choice.

The spreads in CMBS remain an intriguing mystery in the face of this rising market.   The market has risen 22% in 4 weeks, but CMBS hasn’t even budged.


There seems to be a broad consensus in the equity markets: “buy stocks, the economy has bottomed” while the debt side says a very different thing: “remain cautious, the economy is not out of the woods yet”.   As always, we’ll see who is right and who is wrong, but I never bet against my debt friends over the long-term.