Mortgage REITs Bearing CMBS "Tail" Risk

The Mortage Bankers Association today reported a 98% year-over-year decline in CMBS new issuance, which has continued to leave Mortage REIT portfolios at the mercy of the thinly traded CMBX in terms of valuations. Pricing pressure on CMBS (as evidenced by the CMBX) has abated recently, but the index is still indicating levels of distress far higher than the current fundamentals:


The relentless climb of the CMBX is partially the result of pure speculation. However, there is another factor at work as well. While the problems in residential mortgages are already manifest, there's a notable difference between CMBS and their residential counterparts. Losses on RMBS typically decline as the loans age (or "season"), but losses on CMBS are largely driven by tenants' ability to pay rent, and that can be undermined at any point by a slowing economy. The graph below shows that historical CMBS defaults typically peak seven years after issuance. This is "tail" risk, and tail risk for CMBS is rather long:



CMBS delinquencies are now rising, as the graph below depicts. To be fair, most of the delinquencies have been led by multi-family sector, which is partially tied to the single family market via failed condo conversions, and another large component of the increase in that sector can be traced to just one borrower. But the slow rise in defaults in CMBS generally is nevertheless causing a great deal of hand wringing.



That CMBS defaults will rise is not in dispute, simply because they have been at historic lows for much of the past year. Estimates of how high defaults could rise vary widely though, and obviously that affects estimates of how high they may or may not travel up the CMBS capital stack. And "tail" risk is no secret; Mortage REIT portfolio managers account for it in their loss assumptions.

However, while fundamentals are holding up and remain firm, there still is a pervasive sense of fear among CMBS investors and real property investors alike. Costar, in its August 26 article entitled A Dud of a Thriller? Commercial Real Estate Drama Lacks a Killer quoted Philip Conner, of Prudential Real Estate Investors, who compared the market to the Samuel Becket play "Waiting for Godot".

In a report entitled "Waiting for Distress" (I don't have a copy), Connor wrote that "though signs of distress remain largely confined to highly leveraged deals consummated at the peak of the investment cycle, in late 2006 and early 2007, there is an undeniable and growing sense of anticipation among investors that U.S. commercial property values are poised to fall and that widespread distress is just around the corner."

However, Connor noted that in the Samuel Beckett play, Godot never actually appears onstage. "His off-stage presence, whether real or imagined, and his expected arrival largely dictate what does and does not happen in the play."

Connor contends that most of the distress is likely to remain "off stage" in the capital markets. However, capital markets is very much "on-stage" for Mortgage REITs, and just as the abundance of ready and available credit pushed asset prices above their fundamental value, so too will the lack of it push prices below their fundamental, intrinsic value. And when the bottom is finally notched, Godot won't be there to ring a bell for us either.


Disclosure: This play is more interesting.

Graphs courtesy of Markit; Morgan Stanley

REIT Definition

A REIT is an entity organized as a Real Estate Investment Trust (REIT) for federal income tax purposes. In order to maintain REIT status on an on-going basis, a REIT must also operate in conformity with the requirements for REIT qualification under the Internal Revenue Code. The advantage of operating as a REIT is that entities organized and operating as REITs are generally not taxable at the corporate level.


REIT Taxable Earnings Must Be Distributed to Shareholders

Because of the generally tax-free status at the corporate level, REIT dividends paid to shareholders are typically taxed at ordinary income rates. However, for individual investors, the most important requirement related maintaining REIT status is the obligation of the REIT to distribute at least 90% of taxable income to shareholders. This gives shareholders a legal claim to at least 90% of the REIT's taxable earnings (assuming the REIT is able to maintain qualification under the Code).

This distribution requirement is central to the REIT Wrecks investment thesis: To the extent that secular real estate values and associated cash flows are heavily discounted by the broader market, for those REITs with healthy portfolios, the requirement to distribute 90% of taxable earnings creates a compelling investment opportunity in the form of sustainable high yields, followed by capital appreciation as market dislocations ease.

The key to successful investing is the ability to evaluate the credit quality and earnings power of REIT portfolios, which is much discussed here, and the ability of the REIT to maintain its REIT qualification under the Code, and therefore the obligation to distribute at least 90% of taxable earnings to shareholders in the form of dividends.


REITs Must Comply With Income & Asset Tests

The ability to maintain REIT status is also often directly related to the credit quality of the portfolio, since the majority of the REIT's income and assets must also be derived from "real estate sources". To the extent that a REIT portfolio deteriorates, income and assets from real estate sources will decline as "real estate" assets are written down in value and income from "real estate sources" evaporates. In constrained capital markets environments, REITs in this situation are unable to raise funds to replace these "real estate" assets and can no longer meet the REIT asset and income thresholds. Accordingly, they will, in all likelihood, fail to meet the requirements for REIT qualification.

Specifically, at least 75% of the REIT's gross income must be from real estate-related sources, such as rents from real estate and interest on loans and notes from mortgages on real estate. An additional 20% the REIT's gross income can include other passive forms of income such as dividends and interest from non-real estate sources (like bank deposit interest). Consequently, no more than 5% of a REIT's income can be from nonqualifying sources, such as income from management fees or other non-real estate business income. (However, a REIT can own up to 100% of the stock of a "taxable REIT subsidiary" ("TRS"), a corporation with which a REIT makes a joint election that can earn such income, provided such investments do not exceed 20% of assets). In addition, at least 75% of a REIT's assets must consist of real estate assets such as real property or loans secured by real property.

To the extent that income and/or assets related to "real estate sources" fall below the above thresholds, the REIT will be disqualified.


REIT Taxable Earnings vs. Operating Earnings

REIT taxable income is adjusted by deducting any net operating loss carryforwards that have been utilized, after offsetting any net realized capital gains with capital loss carryforwards. This may create opportunities for some REITs to shield themselves from the 90% distribution requirement, since taxable earnings could therefore be less than actual operating earnings. Thus, some REITs may be able to utilize operating earnings to recapitalize their balance sheets.

In addition to the requirements noted above, REITs must also:

- Be structured as a corporation, trust, or association;
- Be managed by a board of directors or trustees;
- Have transferable shares or transferable certificates of interest;
- Otherwise be taxable as a domestic corporation;
- Not be a financial institution or an insurance company;
- Be jointly owned by 100 persons or more;
- Have no more than 50% of the shares be held by five or fewer individuals during the last half of each taxable year (5/50 rule)

Since most REIT by laws require majority shareholder approval to "de-REIT", REITs that meet these tests will continue to be required to distribute at least 90% of taxable earnings to shareholders. This claim on earnings is central to succesful high yield REIT investing, and any REIT that is any danger of losing REIT status will quickly lose its appeal as an investment.

Newcastle's High Yield Going Higher?

The gap between the perception of the risks in mortgage debt and the actual risks is now the exact opposite of where it was just before the credit crunch began.

Let's see, there are a few positive things happening out there and I think I need to write about them before my prescription runs out...

First, it's an election year and not too difficult to make a connection between the calendar and the $300 billion loan modification program housing bill that just passed. We also have 2% Fed Funds rate, and a whole slew of obscure but hugely important Fed programs aimed at restoring liquidity. These programs are unprecedented in scope, and all of it marks a big turnaround from the laissez-faire 5,000 former bear stearns employees days of "largely contained" subprime morgage defaults.

Things will turn around though, they always do, and I think Newcastle is one REIT that may be turning around sooner that some others. I sold NCT late in 2007, which sadly I cannot attribute to any unique insight. I simply got a margin call. That proved to be serendipitous, and a rare bit of good luck for me in what has been an otherwise miserable several months for NCT. In July, the stock hit $4.50.

But Newcastle is no Alesco, and I've been interested in developments there ever since the REIT cut its dividend to less than half its taxable income. REITs are required to pay out 90% of their taxable income to shareholders, so what were they planning to do with all that cash, assuming it wasn't burned up with more losses? Could a special dividend be on the way?

That became an even more pertinent question this quarter, when NCT reported operating earnings (Non-GAAP) which were twice the dividend yet again, a big jump in cash, to $170 million, and $88 million in debt reduction, $57 of which was recourse. 13% of NCTs debt now remains recourse to the Company (less, on a percentage basis, than AHR), and half of that consists of recourse debt on liquid, AAA-implied agency securities.

The Company is also in a similar position to Northstar (The Mortgage REIT With $4 Billion Of Sweet CDOs) with respect to its CDO assets. As loans inside NCT's CDOs get paid off, NCT has been busy replacing them with new assets that are yielding 2-3% more (N.B., NCT's funding costs do not go up, because the poor sots who own the CDOs are stuck with their miserable LIBOR +50). NCT replaced $63 million of CDO assets in the second quarter, and they expect the higher yields on this $63 million alone will generate an additional .06/share annually in earnings.

The Company is also working on further debt reductions, which may occur through asset sales. By the end of the third quarter, if all goes according to plan, NCT plans to be back out in the market aggressively acquiring new assets. They see three primary opportunities, either (1) the repurchase of common stock, which may be the most accretive, (2) the continued repurchase of CDO debt, or (3) the acquisition of new mortgage assets. Obviously, with market spreads being what they are, the ability to do any one of these three things could prove to be lucrative.

That's the good news, and everybody already knows the bad news - or at least they should. In March of 2007, NCT made a contrarian call on the single family mortgage market and announced a $1.7 billion purchase of subprime mortgages. Out of the entire portfolio, almost 40% of the mortgages were in California and Florida.

Back then, the stock was trading at $27. They eventually kicked out $400 million in mortgages - let's hope they were in Stockton and Bakersfield - and closed on $1.3 in May, intending to securitize the loans and retain a $75 million residual. That never happened, and the value of those securities (among other things in their portfolio) clearly kept dropping. NCT was forced to raise cash by selling $1.8 billion of assets in Q1, including $770 million of agency-backed mortgages, which is the good stuff (implied AAA), and take huge write downs on much of the rest of their portfolio they couldn't sell.

Those write downs continued in the second quarter, and in the end the write downs can also be a big driver of taxable income. The question swirling around NCT right now is how big a driver. NCT has now covered their full year dividend nut with just six months of operating earnings. The Company wouldn't give guidance on full year taxable income, but they have consistently said that they intend to make distributions such that they meet meet the 90% requirement. Assuming NCT's current porfolio marks are enough, if NCT can accomplish anything even close to its first and second quarter run rate in the third and fourth quarters, a special dividend gets added to the yield pot in Q4.



Disclosures: None at the time of this writing

High Yield REITs: The Week That Was

I wish it were the week that wasn't. Concerns about the commercial real estate market bubbled to the top of the news and Research Recap did a great job of compiling it all. This week investors looked back to a June report from Standard & Poor’s showing that the CMBX index was causing commercial real estate capital to dry up. Hmmm, sounds about as exciting as a honeymoon in 2080.

More recently, and more seriously, Moody’s also noted last week that US commercial real estate prices fell for the fourth straight month in June, and the New York Times reported that some worry that commercial property loans will be next. (See also How Could My Big Beautiful Loan Go So Bad, So Quickly).

Fannie Mae and Freddie Mac appear to be inching closer to some sort of potentially hostile takeover by the federal government. According to Research Recap, Fannie CEO Daniel Mudd told public radio’s Diane Rehm that Fannie had neither requested nor been offered a bailout and he did not anticipate asking for one. Asked about Fannie’s subprime debt Mudd described it as "very tiny, actually it rounds out to about zero percent of our overall book."

While nobody expects the number of failures that characterized the savings and loan crisis, Regional US Banks may need to be rescued, according to a well-read post from Oxford Analytica. However, unlike the largest financial firms, regional banks may not be regarded as too big to fail.

Disclosures: Except for the recent pucker, none at the time of this writing

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What is a Securitization?

Securitization is the process of taking groups of loans and splitting them into different classes of securities, and then selling the different classes of securities to third party investors. Many Mortgage REITs buy CMBS paper, which are securitizations of commercial mortgage loans. Other mortgage REITs buy mainly "whole" loans, which are loans that have not been securitized.

Before the credit crisis, residential and commercial mortgages were widely securitized, but securitizations have also been done for a wide range of cash-flow producing assets, such as residential mortgages, commercial mortgages, credit card receivables and college tuition loans. Securitization confers a huge advantage to lenders in that it allows the lender to transfer all of the risks around making loans to third party investors.



However, FASB has proposed changes to FAS 140, including the elimination of the QSPE rules which previously allowed for a "true sale" and the complete transfer of risk the lender to the investors (for more on that, see the REIT wrecks post on changes to FAS 140). As the video mentions, the securities were usually "tranched" into different classes, which enhances the credit rating of the resulting securities beyond that of the underlying assets. This is known as Credit Enhancement.

Essentially, issuers take the loans and split them into "tranches" which have different levels of risk (referred to as "subordination"). So, if the entire group of securities would have a credit rating of BBB, and you cut it into several tranches, the highest tranche with no subordination, could have a credit rating of AAA, because it gets paid first, and the only way it would not get paid would be if a huge group of the underlying loans were unpaid (i.e. the highest tranche has the lowest risk). Issuers can also "over-collateralize" the pool.

Tranching is important because different Mortgage REITs invest in different classes, or tranches, of the CMBS pool. Anthracite Capital, for example, invests mainly in the "controlling class" (so-called because AHR can take "control" of the defaulted assets) portion of CMBS deals. This is also known generally as the "B Piece". Aside from the equity, which is unrated, the "B piece" is the highest risk and lowest rated portion of the securitization. If large numbers of mortgages default in a CMBS issuance, the controlling class has the most subordination and is the first to take a loss. Therefore, if a Mortgage REIT like Anthracite owns the controlling class securities of a securitization with extremely high rates of default, the REIT's entire investment in that CMBS issuance can be wiped out. If you want to learn more about tranching and over-collateralization, see the REIT wrecks post on CDOs.

Disclosure: None at the time of this writing

Bloomberg Interview With Sam Zell: The Credit Crisis

Sam Zell, a self-proclaimed "professional opportunist," founded his privately-held firm with a fraternity brother in 1968. The two bought up cheap real estate throughout the U.S. from distressed owners, and then kept buying when values recovered and boomed.

In this interview, he speaks about the need to support Fannie Mae (FNM) and Freddie Mac (FRE) debt, at the expense of shareholders, and the opportunities he now sees in the distressed debt sector.

He says real estate is "fairly" priced (not overpriced) and that his focus on investing in distressed debt is just a natural outgrowth of his focus on value - he sees more of it in the debt than he does in the equity. He also says that the credit crisis has virtually shut down all new apartment development (he is also Chairman of Equity Residential (EQR), a large publicly-traded apartment REIT), so that from a supply standpoint things look very good in apartments, and demand obviously will be driven by all those former homeowners who can no longer get "liar" loans.

Disclosures: None at the time of this writing

Fannie & Freddie Can't Sell Their Debt

A few days ago, I was talking with a friend who until very recently had been in charge of capital markets at a privately-held "hard money" lender. Hard money is a rough and tumble world of last resort, where borrowers who are out of both time and luck go for quick cash, priced at prime plus ten and three points on closing.

My friend left because he refused to participate in a quiet, back-room shell game designed to conceal the true health of the firm's loan book from their accountants and lenders. The scheme basically involved trading bad loans back and forth with competitors, then disguising the trades as repayments and refinancings. All they did was replace one piece of illiquid, rotting swamp sludge with another, but it made the companies and their portfolios look much healthier than they actually were.

While I found what he told me to be pretty disturbing, I dismissed the practice as a product of that particular environment, excacerbated by the fact that this firm was privately held. After all, Sarbanes-Oxley was written specifically to increase disclosure at public companies, and didn't Andy Fastow and Jeff Skilling go to prison for falsifying financial records? And then Phil Bennett at REFCO after them?

So imagine my alarm when I read of similar financial contortions going on over at Fannie Mae, (FNM) and Freddie Mac (FRE). Foreign investors, particularly Asian central banks that had been huge buyers of Fannie and Freddie debt have pulled back in recent weeks, and that left Fannie and Freddie with no resort but to play "let's make believe" with their debt sales last week.

In its online edition, The Economist wrote "Fannie, Freddie and Lehman ensure August is anything but quiet" that a five-year issue by Freddie Mac on August 19th sold for 1.13 percentage points over treasury bonds, the highest spread for at least a decade, and almost double what Freddie had to pay just a few months earlier. But extraordinarily high yields are only part what Fannie and Freddie had to offer.

According to The Economist, the banks that manage the agencies' debt issues are pulling out all the stops to ensure their success, even to the point of artificially boosting demand through deals known as "switches". In such an arrangement, an investor agrees to buy into a new issue in return for being able to sell back to the banks an equal amount of an old one, thus ensuring its net exposure does not rise.

If enough of these deals are struck, large amounts of debt can be shifted even when demand is thin. A recent $3.5 billion issue by Fannie was helped along by "very significant" amounts of switching, said one banker involved in it. With $223 billion, or one-seventh, of the agencies' debt falling due before the end of September, those peddling it will have their work cut out for them, especially if the Asian investors continue to be put off by unkind headlines.

Fannie Mae and Freddie Mac are now clearly out of time and luck, and it looks like we taxpayers will soon become the hard money lenders of last resort. Bernanke signaled just such an outcome last week in Jackson Hole, and both common and preferred equity holders will soon be completely wiped out. Unfortunately, we have no choice. As The Economist wrote: "loss of faith in the firms' equity is one thing, ebbing confidence in their vast pile of debt is altogether scarier."

Disclosures: None at the time of this writing

The Encylopedia of CDOs

Numerous Mortgage REITs took advantage of the credit bubble to issue Collateralized Debt Obligations (CDOs), which funded their purchase of a variety of mortgage assets. Many REITs got into trouble with this relatively indiscriminate, undisciplined form of cheap capital. Still others didn't seem to care, issuing them furiously in return for the management fees they could collect from running them.

In a nutshell, REITs would purchase mortgage debt or real estate related assets for investment, create a CDO, and then fill it with the mortgages or real estate assets they had purchased. In theory, the cost of the CDO debt was much lower than the yield on the mortgages, and REIT investors would benefit from the spread (arbitrage) income. It didn't always work out so well, and for those of you that want to learn more about CDO structures, I have posted these excellent video tutorials. It would also be beneficial to re-read my post on FAS 159 (Muddled Mortgage REIT Book Values Create Opportunity) after you watch the videos. FAS 159 is closely connected to "legacy" Mortgage REIT CDOs and very important relative to the book value debate. In this market however, this is mainly an academic excercise. Don't ever forget that operating cash flow is king, not GAAP income.

By way of introduction, Mortgage REITs issued synthetic, or arbitrage CDOs. They sold the debt to third party investors (in some cases, other CDOs), and held the equity. Since the debt was sold and the equity held, Mortgage REITs can never lose more than the amount of their equity investment:




Mortgage REITs also earned a yield on the equity investments they held. However, the concept of subordination meant that the equity yield would disappear if the senior lenders were put at risk. In order to get investment grade ratings on the senior tranches, any losses would first be applied to the junior tranches (the equity and mezzanine tranches). This was the result of tranching and overcollateralization, and this next video introduces those concepts:




In addition to tranching, the senior tranches were also (in theory) protected by "overcollateralization", or that the investors would be holding assets that were greater in value than the total value of the securities they had purchased. This also relates to "over-collateralization tests", that were designed to divert cash flows away from the equity and to the more senior tranches if and when a certain amount of defaults occurred in the reference portfolio:



Do read the REIT Wrecks summary of FAS 159, it may be easier to understand after watching these videos. It may also be helpful to read my other post on the mechanics of mark to market accounting. It is doubtful that the CDO market will ever come back in the same form for Mortgage REITs, but with so many legacy assets out there, and the opportunity for Mortgage REITs to repurchase their own high yielding CDO debt, understanding CDOs, FAS 159 and mark to market accounting is a critical foundation for conducting accurate research and due diligence on Mortgage REITs.

Earlier Vintage CMBS "Grossly" Mispriced

In an earlier article ("Mortgage REIT Yields Still Look Safe, But Stick to the Seasoned Veterans"), I wrote that high yield Mortgage REITs with relatively "seasoned" portfolios offered much better safety and value than those with portfolios stuffed full of more recent vintage CMBS. Now, analysts at Barclays Capital also say that the pricing on some earlier CMBS are not fully reflecting the safety of the risk-free treasury securities that replaced the original collateral on many of those earlier vintage pools.

Later vintage CMBS is now under a very bright popular media spotlight on news that a $225 million loan for a New York City apartment complex is heading toward imminent default ("How Could My Big Beautiful Loan Go So Bad, So Quickly"). That loan suffered from egregiously aggressive 2007 underwriting standards and had virtually no hope of being repaid. As a result, "headline risk" is again high and many CMBS traders and portfolio managers are once again shooting first and asking questions later.

However, not only were underwriting standards much stronger in earlier vintage CMBS, but many pre-2005 CMBS loans have also been "defeased" by the original borrowers. Defeasance occurs when highly rated collateral, always AAA-rated US government securities, are deposited into an escrow account for the benefit of the lender. The treasuries are sufficient to make all remaining principal and interest payments under the loan, and the lender's security interest in the underlying real estate is replaced by a security interest in the treasury bonds.

Why does this happen in the first place? Because of the highly restrictive provisions on repayments contained in every loan destined for CMBS pools, borrowers are "locked out" from paying off the loans for at least five years. After that, prepayment is subject to terms that protect the lender (and ultimately the CMBS investors) from "re-investment risk", which is what happens when you get a pile of money back in an unfavorable (low) interest rate environment. Nevertheless, owners of property purchased in earlier years that had been financed via the CMBS market needed to have some way to pay off the loans and cash out when they sold, particularly in the ebullient years of 2005-2007.

This was accomplished by defeasing the loan, a practice that got off the ground for CMBS in 1999 (it was already widespread in other markets). Defeasing CMBS loans grew in popularity, and by 2002 the business had taken off. Many, many earlier vintage CMBS loans were defeased and are now backed by AAA rated government securities, instead of beaten up shopping malls full of Bennigan's and Steve and Barry's.

While the effect of higher credit enhancement is widely recognized, the Barclays analysts think that the market is nevertheless "grossly mispricing" heavily defeased CMBS. They contend that the 2005 to 2007 surge in defeasances left many older vintage collateral pools with over 25% in risk-free government collateral. Such risk-free assets should command a premium in today’s uncertain environment, although they say current market spreads do not reflect that or maybe the Chinese are just dumping every treasury-related security they can lay their hands on.

Pricing on high defeasance paper is roughly five to 10 basis points tighter depending on the vintage — but the analysts think that bonds with high defeasance should command an additonal a 20 to 40 basis point premium compared with non-defeased senior tranches as a result of the more favorable risk profile.

Clearly value does remain in CMBS and the collateral; the real question hovering around the room late at night is what is the value of the real estate supporting it? Analysts agree that cash flows are holding up, but that investors are simply continuing to pay less and less for those cash flows. And that whistling sound you hear in the background is just a lot of people in the graveyard, wondering how much longer that will go on.

Disclosures: None at the time of this writing

Multifamily Loan Originations Down 42% in Second Quarter

Commercial and multifamily mortgage loan originations continued to fall on a year-over-year basis in the second quarter, according to the Mortgage Bankers Association's (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. Overall, second-quarter originations were 63 percent lower than during the same period last year and multifamily property loans saw a 42 percent decrease in the same period.

“Since the onset of the credit crunch, we have seen an overall slowdown in multifamily property sales transactions, Commercial Mortgage Backed Securities (CMBS) loans and issuance of mortgages in general,” said Jamie Woodwell, MBA's vice president of Commercial/Multifamily Real Estate Research. “This is the main reason there is a drop in the loan originations for multifamily.”

Woodwell explains that this is also because of an overall decrease in demand for multifamily mortgages. “In addition, there are differences in investor groups that contribute to this 42 percent drop. Financing from banks, thrifts and life companies has slowed down, though not to the extent the CMBS market has,” he explains.At the same time, Woodwell says the for Government Sponsored Enterprises (or GSEs - Fannie Mae FNM and Freddie Mac FRE<) have demonstrated the strongest second quarter on record.The dollar volume of loans for GSEs saw an increase of 66 percent (see Multifamily Market Stable; Fannie, GSE's Share Growing).

The level of originations for the GSEs was the highest recorded for a March through June period, while the CMBS market saw the lowest level since the MBA survey began in 2001. Among investor types, conduits for CMBS saw a decrease in loan volume of 53 percent compared to the first quarter of 2008, loans for commercial bank portfolios saw an increase in loan volume of 27 percent compared to the first quarter of 2008, life insurance companies increased by 8 percent during the same time span, and GSEs volume was essentially unchanged from the first quarter 2008 to second quarter 2008.

“The slowdown in originations has come from both a decrease in the supply of capital available and a decrease in the demand for new mortgages. It is likely that volumes will remain muted until buyers, sellers, borrowers, lenders and their expectations of rates and terms match closely enough for transaction activity to pick back up," Woodwell explains.

The report also found that second quarter 2008 mortgage originations were two percent lower than originations in the first quarter of 2008 with a 14 percent decrease for multifamily properties.“We saw extraordinary levels of property sales transactions and mortgage originations in 2005, 2006 and 2007 and in some ways, we have now come back from those highs. In addition, there isn’t a high percentage of loans maturing in 2008 (see High Yield Mortgage REITs, the Perfect Storm?), and in the face of the credit crunch, without a huge wave of loans needing refinancing, the decrease is expected,” explains Woodwell.

Woodwell believes that even though multifamily loans are performing very well for the GSEs, any impact on their portfolios due to a possible bail-out of Fannie Mae and Freddie Mac will have an impact on multifamily.

Disclosures: None at the time of this writing

Retail REIT List

This is the most up-to-date Retail REIT list on the web. The list is organized by alphabet in ascending order. It also includes working links to the home page of each REIT, and links to Yahoo quotes. Links to additional REIT lists by property type can be found below the table.

RETAIL REIT LIST BY ALPHABET
REIT NAME	REIT Wrecks Post?	YAHOO QUOTE
Acadia Realty Trust	Not Yet	AKR
Alexanders, Inc.	Not Yet	ALX
AmREIT	Not Yet	AMY
Agree Realty Corp	Not Yet	ADC
CBL & Associates	Not Yet	CBL
Cedar Shopping Centers	Not Yet	CDR
Developers Diversified Realty	Not Yet	DDR
Equity One	Not Yet	EQY
Federal Realty	Not Yet	FRT
General Growth Properties	Not Yet	GGP
Glimcher Realty Trust	Not Yet	GRT
Inland Realty	Not Yet	IRC
Kimco Realty	Not Yet	KIM
Macerich Company	Not Yet	MAC
National Retail Properties	Not Yet	NNN
Pennsylvania Real Estate Investment Trust	Not Yet	PEI
Ramco-Gershenson Properties Trust	Not Yet	RPT
Realty Income Corp.	Not Yet	O
Regency Centers	Not Yet	REG
Saul Centers, Inc Mortgage	Not Yet	BFS
Simon Property Group	Not Yet	SPG
Taubman Centers	Not Yet	TCO
Urstadt Biddle Properties	Not Yet	UBA
Weingarten Realty Investors	Not Yet	WRI

Click here for a list of Mortgage REITs.
Click here for a list of Apartment REITs.
Click here for a list of Office REITs.
Click here for a list of Hotel REITs.

Hotel REIT List

This is the most up-to-date Hotel REIT list on the web. The list is organized by alphabet in ascending order. It also includes working links to the home page of each REIT, and links to Yahoo quotes. Links to additional REIT lists by property type can be found below the table.

HOTEL REIT LIST BY ALPHABET
REIT NAME	REIT Wrecks Post?	YAHOO QUOTE
Entertainment Properties Trust	Not Yet	EPR
Felcor Lodging Trust	Not Yet	FCH
Golf Trust of America	Not Yet	GTA
Hersha Hospitality Trust	Not Yet	HT
Hospitality Realty Trust	Not Yet	HPT
Host Hotels	Not Yet	HST
InnSuites Trust	Not Yet	IHT
Lasalle Hotel Properties	Not Yet	LHO
Strategic Hotels & Resorts	Not Yet	SHO
Sunstone Hotel Investors	Not Yet	SHO
Supertel Hospitality, Inc.	Not Yet	SPPR

Click here for a list of Mortgage REITs.
Click here for a list of Apartment REITs.
Click here for a list of Office REITs.
Click here for a list of Retail REITs.

Mortgage REIT List

This is the most up-to-date Mortgage REIT list on the web. The list is organized by alphabet in ascending order, categorized by type (Residential Mortgage REIT or Commercial Mortgage REIT). It also includes working links to the home page of each REIT, and links to Yahoo quotes. Given all that has happened to Mortgage REITs recently, I included the good, the bad and the ugly, including those that just recently de-REIT'ed, and those that are likely to de-REIT soon. If it still trades, it's listed here. Links to additional REIT lists by property type can be found below the table.

MORTGAGE REIT LIST BY ALPHABET
REIT NAME	TYPE	YIELD (as of 12/08)	YAHOO QUOTE
Alesco Financial	Commercial/CDO/TRUPs	170%	AFN
American Capital Agency	Residential Agency	20%	AGNC
American Mortgage Acceptance	Commercial	N/A	AMOA.PK
Annaly Capital Mgmt	Residential Agency	15%	NLY
Anworth Mortgage	Residential Agency	15%	ANH
Arbor Realty Trust	Commercial Whole Loans	35%	ABR
Ashford Hospitality Trust	Hybrid/Hotel	54%	AHT
Bimini Capital Mgmnt	Residential	N/A	BNMN.OB
BRT Realty Trust	Commercial	85%	BRT
Capital Lease	Commercial	38%	LSE
Capital Trust	Commercial	48%	CT
Capstead Mortgage Corp	Residential Agency	21%	CMO
CBRE Realty Finance	Commercial	160%	CRTYZ.OB
Chimera Investment Corp	Residential Non-Agency	21%	CIM
Crystal River Capital	Commercial	57%	CRZ
Deerfield Capital Management	Commercial/Mezz	7%	DRF
Dynex Capital	Commercial	14%	DX
ECC Capital Capital	Residential subprime	N/A	ECRO.PK
First Republic Preferred Capital Corp	Commercial/Residential	N/A	FRCCO
Grammercy Capital Corp	Hybrid/Financial	220%	GKK
Hanover Capital Holdings	Residential Non-Agency	N/A	HCM
Hatteras Financial	Residential Agency	16%	HTS
Impac Mortgage Holdings	Residential Non-Agency	N/A	IMPH.PK
iStar Financial	Commercial	260%	SFI
JER Investors Trust	Commercial	89%	JER
Luminent Mortgage Cap	Residential	N/A	LUMCQ.PK
MFA Mortgage	Residential Agency	14%	MFA
Newcastle Investment Corp	Commercial/Residential Agency	55%	NCT
Northstar Realty Finance	Commercial Whole Loans/Net Lease	43%	NRF
Novastar	Residential	N/A	NOVS.PK
Origin Financial	Residential (Mfctrd Housing)	40%	ORGN
PMC Trust	Commercial/Small Balance	13%	PCC
RAIT Financial Trust	Commercial/Net Lease	59%	RAS
Redwood Trust	Majority Residential	23%	RWT
Resource Capital Corp	Commercial	51%	RSO
Thornburg Mortgage	Residential Whole Loans	2000%	TMA
Vestin Realty Mortgage Trust	Commercial Whole Loans	26%	VRTB
Webster Preferred Capital Corp	Commercial/Residential	N/A	WBSTP

Click here for a list of Apartment REITs.
Click here for a list of Office REITs.
Click here for a list of Retail REITs.
Click here for a list of Hotel REITs.

Office REIT List

This is the most up-to-date Office REIT list on the web. The list is organized by alphabet in ascending order. It also includes working links to the home page of each REIT, and links to Yahoo quotes. Links to additional REIT lists by property type can be found below the table.

OFFICE REIT LIST BY ALPHABET
REIT NAME	REIT Wrecks Post?	YAHOO QUOTE
Alexandria Real Estate Equities	Not Yet	ARE
Brandywine Realty Trust	Not Yet	BDN
Boston Properties	Not Yet	BXP
Corporate Office Properties Trust	Not Yet	OFC
Franklin Street Properties	Not Yet	FSP
HRPT Properties Trust	Not Yet	HRP
Mack-Cali Realty Corp	Not Yet	CLI
Maguire Properties	Not Yet	MGP
Mission West Properties Trust	Not Yet	MSW
Pacific Office Properties	Not Yet	PCE
Parkway Properties	Not Yet	PKY
PS Business Parks	Not Yet	PSB
SL Green Realty Corp	Not Yet	SLG

Click here for a list of Mortgage REITs.
Click here for a list of Apartment REITs.
Click here for a list of Hotel REITs.
Click here for a list of Retail REITs.

Apartment REIT List

This is the most up-to-date Apartment REIT list on the web. The list is organized by alphabet in ascending order. It also includes working links to the home page of each REIT, and links to Yahoo quotes. Links to additional REIT lists by property type can be found below the table.

APARTMENT REIT LIST BY ALPHABET
REIT NAME	Yield (as of 12/08)	YAHOO QUOTE
American Campus Communities	6%	ACC
AIMCO	20%	AIV
Associated Estates Realty	7.8%	AEC
Avalon Bay	5.9%	AVB
BRE Properties	7.7%	BRE
Camden Property Trust	10.6%	CPT
Education Realty Trust	18%	EDR
Equity Residential	6.3%	EQR
Essex Property Trust	4.7%	ESS
Home Properties	6.9%	HME
Maxus Realty Trust	N/A	MRTI.PK
Mid America Apartment Communities	6.6%	MAA
Post Properties	11.5%	PPS
Roberts Realty Investors	N/A	RPI
United Dominion	8.7%	UDR

Click here for a list of Mortgage REITs.
Click here for a list of Retail REITs.
Click here for a list of Office REITs.
Click here for a list of Hotel REITs.

Crystal River's New Loss-Driven Investment Strategy

"The future ain't what it used to be"
Yogi Berra

Crystal River (CRZ) has had an absolutely terrible time of it. The REIT went public at $23 a share in July of 2006, and then blew through about $350 million, or almost $14 per share, in just eighteen months.

The second quarter of 2008 continued to show the unfortunate results of CRZ's ill-timed buying spree. Book value fell even further, to just $2.46/share, after another GAAP loss of almost $90 million, driven again by continued impairment charges (including remodeled future cash flows) and mark-to-market losses. The company has been steadily selling whatever decent assets it has left in order to pay down debt, and this has added insult to injury by further reducing the quality of the earnings available for shareholders.

Consequently, the Company also announced another reduction in its quarterly dividend, this time by more than half, to just $0.10/share. The Company's stock price has been marching relentlessly in one direction (south), and investors tempted to buy into this value trap even three or four months ago have been treated to nothing less than death by one million falling knives. or maybe just a nice pair of cement boots for crystal river's sea of red ink

The Company announced last quarter that it was pursuing "future strategic business opportunities", which is usually a euphemism for selling out run for the hills! or merging. Given that they called off the initiative this quarter, one can reasonably assume they found no takers.

Interestingly, however, the company did manage to generate positive operating earnings of $.67/share. The Company's CMBS portfolio was also looking pretty good, with delinquencies of less than 1% (in line with the market, but this will surely increase), no shaky interest-only loans, and no near-term maturities to worry about. Even more interesting, however, was this little nugget in their earning release: CRZ says that all these losses may actually cause the company’s operating earnings to exceed its taxable income for the next several years.

Is this bit of accounting errata of any real consequence? For this cash-starved REIT, it is potentially very significant. IRS rules require all REITs to distribute 90% of taxable income to shareholders. If there is no taxable income, there are no distributions. However, CRZ is actually generating cash earnings from operations. Because the Company is generating tax losses, this cash operating income will now be sheltered from taxes as well as the requirement to distribute it to shareholders.

There is a saying about pissing on somebody's leg and then telling them that it's actually just raining, but this oxymoronic situation could wind up being very beneficial for CRZ investors. It would give management some crucial breathing room by allowing them an opportunity to reinvest that cash in the continued reduction of short term debt, or the acquisition of new, accretive higher-yielding investments. please, not again

With access to capital in this sector reduced to zero for the foreseeable future, even something is better than nothing. Significantly, the Company's CEO, Bill Powell, announced that he would be making purchases of the stock on the open market after his blackout period ends, and he followed up with a reasonably big purchase. Reasonable, yet also pretty adventurous given CRZ's precariously thin unrestricted cash position of $2 million (the company does have access to its revolver) and the composition nuclear waste of its investment portfolio.

I personally won't be dumping any of my hard-earned clams into this disastrous bubble mania, bed-wetting poster child anytime soon, but it's becoming a more interesting story. Current shareholders may soon owe a debt of gratitute to 2006 shareholders for helping to produce what could turn out to be CRZ's most valuable asset: tax losses

Disclosure: None at the time of this writing

Apartment REITs Holding Up, But No Longer A Sanctuary

According to Bloomberg Indexes, REIT investors have beaten the S&P 500 so far this year, especially if they invested in owners of apartments and self-storage buildings. The National Association of Real Estate Investment Trusts reports that apartment equity REITs jumped 11.88% in July, second only to health care REITs, which notched an 11.94% jump for the month. Small comfort to those still trying to dig out from under the rubble of Mortgage REITs:

But now the specter of job losses is beginning to spread the gloom into this sector as well. As would-be renters are doubling up in apartments or moving in with friends and families, rents and occupancy rates on apartments are beginning to fall in many cities. The so-called "growth" in many areas of the country was illusory and tied to the housing boom (construction, mortgage brokerage, remodeling, borrowing on home equity to pay for dinners out, etc.). Long term, the trends for apartments have never been better, but right now there is just no place to hide. Click here for a complete Apartment REIT list.

Disclosure: None