The Debts of the Spenders: CMBS Graph Update

CMBS graph update: A lot of it has to do w/the mezzanine lenders. Under mezzanine lending structures, the "mezz" firms own subordinated debt or preferred equity instruments that represents a claim on a company's assets, which is senior only to that of the common shares. Mezz financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.

Just think of it as the private sector model for TARP funding (regulators chose to go along the preferred stock route last autumn).

Because of leverage the yields were very fat ...as long as the debtors paid on time. But that isn't happening anymore.

In fact, properties are barely able to meet their 1st mortgages let alone the mezz debt. Even if the mezz firms try to take over the assets they face a lengthy ct battle as well as the prospect of owning empty office shells bereft of tenants and full of back taxes.