May 16, 2009 7:23 AM

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REIT Wrecks said…
Hey Crabs of steel if you please, welcome back. I replied, tongue in cheek, to your last comment on the REIT Dividend post. Those AIMCO “deals” in Ohio are poster children for the bid-ask spread phenomenon.

I haven’t heard of Fannie Mae offering any interest only product on propery-level deals this year. They do offer 7 year capped floaters, but 10 year fixed FNM deals are closing around 5.25%, so I think most people would avoid the added risk of a shorter term IO (even if it were being offered) or floater in favor of locking in 10 year money.

BTW, The Babcock deal was ideed a floater but for the sake of good order it was not a Fannie Mae deal. It was underwritten by GE and securitized via Credit Suisse.

One of the B&B principals involved in the acquisition of the Alliance portfolio (the one now in default) is a friend of mine, and while he is a great guy, as well as a smart guy, he knew nothing about apartments other than what the brokers told him.

So they took the broker pro-forma, signed the contract and financed those “cash flows” with an 84 month I/O, with a $15MM piece of Mezz thrown on top for good measure. In early 2008, as the end was drawing near, they would start off meetings by saying what a great job they had done on the financing – locking in an 84 month I/O at 5.25%…and that it was assumable at the right price!

May 18, 2009 8:27 AM

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crabsofsteel said…
Wrecks,

They do write full-term interest only loans but it’s not what you think. Just about every CMBS deal since 2002 had a class that was backed solely by cashflows from a group of loans which were FN or FH approved. FN or FH would then buy the bond, which is the same for them charterwise as originating the loan. Except that they could now own loans which were not written to their standards. So even though GE originated Babcock, FN or FH funded it, and owns it. Usually it was FH.

I/O loans are great ideas, until they aren’t.