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Caldera Newsletter • October 2009

Featured Professional

Property Taxes: Yes that
dreaded Line Item Operating Expense!

Michael B. Rogers
Alliance Tax Advisors, Denver

Real estate taxes are going up! That has been common place in the apartment market for quite some time. Now, with values generally going down, at different degrees depending where you are located, shouldn’t property taxes follow suit? No, not necessarily. .....

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Weathering the Next 18 Months

Michael Kelly
Caldera Asset Management

Reprinted from UNITS Magazine
Published: September 2009

The days of 300 properties trading hands per month at increasing values are gone. Multifamily housing debt now exceeds $895 billion, according to a recent Federal Reserve report. The apartment market will be lucky to clear 600 properties nationally in all of 2009.

The recent upside cycle from early 2005 to early 2008 was better and longer than most cycles. However, it looks like the current downside cycle may also be longer and deeper than most. The majority of owners are feeling pain, and that could be mitigated and recovery could start sooner if banks, agencies, credit companies and insurance firms.......

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Who is watching the Watchlist?
Looming Avalanche as Loan Defaults snowball downhill

By Karsang Sherpa
Vice President of Caldera Asset Management

The Apartment CMBS delinquency rate in July 2009 hit 5.71%, a 289 basis points jump from 2.82% recorded in December 2008 and 404 basis points jump from only a year ago. At 5.71%, the current rate looks alarming, but even more alarming is the speed at which it is spiraling up.

Per Trepp data, over 24% of all apartment CMBS loans have recently been added to “Watchlist”. A detailed analysis of Watchlist loans tell a tale of astronomical defaults that are slated to hit all metropolitan areas and spread across all asset classes, including Class A, B and C.

Nationwide, a staggering $24 billion CMBS loans are on Watchlist. What is more surprising is even historically stable institutional cities such as Washington D.C. and San Francisco make to the top ten list. Even in these cities, transactions done between 2005 and 2007, and based on ever increasing rents and decreasing cap rates have suffered when those assumptions didn’t materialize.

Vitually all the Watchist loans originated prior to 2005 were set at fixed rates with a weighted average rate of 6.53%, and about half of these have lower than 1.0 DSCR based on net income. Among all 200 loans, only 10% are maturing in 2009 and 2010, clearly signaling that majority of loans are facing term risks.

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Caldera in the News:

The Health of
Commercial Real Estate

Capital Markets: Weathering
the Next 18 Months

Apartment occupancy down,
renters have upper hand

More Losses on Multi-Family
Home Investments

Multifamily Misery

Diamond District:
More Real Estate Woes