Carl Icahn says CRE is in a bubble?
Thoughts

https://www.cnbc.com/2020/03/13/icahn-reveals-his-biggest-short-position-amid-market-turmoil-commercial-real-estate.html?__source=facebook%7Cmain
[{"id": "fklyuda", "text": "Seems like this is specific to shopping malls, no? Which are already failing...and have been for years. Where is the bold claim here? Real estate itself is going nowhere, it just adapts. \n\nAlso, Icahn is often wrong. Just look at his own fund, which reported losses 4 of the last six years while the stock market was booming. I think in his old age he is OK with just throwing bold predictions against the wall and hoping a few stick so he looks cool.", "replies": [{"id": "fkm87ef", "text": "I agree. Just opening up the floor for convo", "replies": [{"id": "fkm9h79", "text": "Yea those are my thoughts. Never liked Icahn. Seems like he just enjoys being on CNBC a little too much", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fkml6po", "text": "Traditional CMBS will likely see losses from hotel / seniors / retail sector so swaps on first loss isn\u2019t necessarily a bad idea, HOWEVER with so much I/O debt out there a lot of people will get their asses bailed out by dropping interest rates offsetting a fallout in rental rates. I think net net Levered cash flow ends up roughly in the same place. I wouldn\u2019t want to be sitting on fixed rate debt on hotels/retail/seniors right now as the bottoms falls out, think other sectors should be OK given long durations of industrial leases and adaptability of MF sector. \n\nNo way the bottom totally falls out on CRE though, coverage should be good and with rates so low cap rate spreads have kind of gapped out so don\u2019t see a huge diminution in value other than what\u2019s caused by potential fallout of NOI. That being said there\u2019s so much dry powder right now on Debt Fund and Equity side I think owners in trouble should be able to get out without stuff going back to the bank. \n\nMy $0.02, but let\u2019s see what happens over the next 60 days.", "replies": [{"id": "fkmm4oh", "text": "I truly hope you are right", "replies": [{"id": "fkmo3mw", "text": "Me too... not to root for someone else\u2019s failure but it would be nice to see BREIT get smacked in the face with a huge markdown, they\u2019ve totally disrupted the market and if they have to work out or take back the bellagio it\u2019s going to hose all of the RIAs who have been shoveling them money. Those guys have created an unfair playing field by taking in the RIA $$$ for \u201ccore plus\u201d when it\u2019s really just any shit they can buy that yields better than a 6%", "replies": [{"id": "fkmprer", "text": "Agreed that would be nice to have them and some other big names knocked down a few pegs and have their investors look behind the curtain a bit. Would be great to level the playing field. Seems like the large institutions have an insane leg up (in terms of acquisitions) on everyone else even in the middle market", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fkn5ulb", "text": "We just sensitized our portfolio with the new LIBOR curve and flat rent growth / higher vacancy... net wash", "replies": [], "depth": 2}, {"id": "flu2txw", "text": "You seem to be very knowledgeable regarding CMBS and I was wondering if you could elaborate further on how bank CMBS loan origination will be impacted.", "replies": [{"id": "flu8aei", "text": "It will come to a grinding halt. There are two financing groups at big banks - balance sheet and syndication. Balance sheet should normalize first because they\u2019re all loans that the banks hold onto - there\u2019s no third party underwriting risk. Spreads blew out on these loans over last two weeks and most banks are UW anything right now if it wasn\u2019t already approved - new pipeline is effectively dead and those guys are spending all of their time checking in with borrowers to proactively see where the sky is falling and where there are bright spots. \n\nOn the syndication side, that activity is 100% dead. Banks need to (1) make the loan, then (2) put it into a warehouse/repo facility until they have enough of it to then (3) issue a CLO / CMBS issuance. They can still do 1, sure, but step 2 is dead - the repo facilities aren\u2019t taking in anything new. A repurchase facility is a line of credit extended by another bank whereby you, bank a, sell the loan to bank b at some discount, and then  agree to repurchase (the repo) the loan from bank b at the discount plus some level of accrued interest. However, repo facilities mark to market debt and if they\u2019re holding a ton of hotel or retail debt right now and it\u2019s worth less than the discount they paid, they have the right to auction that debt. That\u2019s what\u2019s going on with the repo liquidity crisis right now - those lenders are freaking out and telling the hedge funds / banks / others to come up with the cash to buy the loan back now or else the repo lender will auction the loan to the highest bidder. Keep in mind that the hedge funds / private credit guys typically sell the repo at like 70-80% of par so if they need to pay off the facility they need to come up with a LOT of cash quick. Also not having note on note financing is going to crush your returns. \n\nWith the repo market DOA, step 2 can\u2019t happen, which means that step 3 can\u2019t happen - the CMBS float. Lenders need to accumulate a ton of loans in aggregate to make sure that they have sufficient asset class, sizing, and geographic diversification to get the lowest rate possible when they float securitization. The game as a CMBS lender is that (making up numbers mind you) you lend at l+300 but on a blended basis the securitization is like l+250 on the A piece so you capture the excess spread on your B piece. Per post GFC risk retention rules you as the CMBS originator need to hold the B (first loss piece) for 2 years or until only like 25% of the pool remains, so when the float is all done your first loss piece is priced at like l+800. You can then do a thing called a re-REMIC which is like taking out more debt on your B piece to juice your returns to like L+1500. Then once you\u2019re able to you sell the re REMIC first loss piece you\u2019re still holding for like L+900 (people will pay less because it\u2019s seasoned now and a little bit de-risked) and Viola - you\u2019ve financially engineered a 20%+ levered IRR on an L+300 loan. \n\nThe biggest problem with part 3 of this though is that aside from the fact that repo is dead, you also hold the first loss position - if a loan defaults you\u2019re the one who feels the pain, and with all of the leverage I described as you can see how you can get wiped out super fast. If no one knows what the long term is impact is of CV-19 then no one will want to originate CMBS loans because they can\u2019t properly underwrite the credit risk to develop a loss adjustment model to figure out their loss exposure on the b pieces. \n\nAs a result of this balance sheet lending will probably bounce back first in like 3-4 months but non-agency CMBS originations will probably take a little bit longer. Oh and hotel origination is probably dead to the world for a long time. \n\nHope this helps.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]