Tranche Warfare Article
Hat tip to CRE Review, again.  Here is a BusinessWeek article on CMBS.  Not too much on the intricacies of tranche warfare, but more of a summary of all the big, highly leveraged real estate deals that are imploding, which used debt now lodged in CMBS. 

The article does give a glimpse of the problems facing commercial real estate and what form the solution will arrive.  The problem, which is mirrored throughout the country, is exemplified by Stuyvesant Town / Peter Cooper Village, the mega-apartment complex in Manhattan.  It was acquired for $5.4 billion in 2006 and used $1.4 million of mezzanine debt and $3 billion of mortgage debt, which are both in CMBS. The property is worth $1.8 billion, so its equity is gone, the mezzanine is gone and almost half the mortgage is gone. 

The solution is going to be new equity (and new owners) and a refinance of the CMBS debt.  Here is the equity available:

Real estate private-equity firms raised $6.8 billion in the fourth quarter of 2009, according to London-based Preqin Ltd., and more than $40 billion for the year. Sternlicht, the former chairman of U.S. lodging company Starwood Hotels, raised $930 million when he took Starwood Property Trust public in August.

The solution is going to get ugly,  but there is capital available to buy the properties and refinance the debt.   The legal wranglings combined with how much new equity is available is going to dictate the fate of commercial real estate.  A few precedent setting decisions and workouts will spread across the CMBS market.  The question for many CMBS tranche investors is do you want 100% of nothing, or a smaller percentage of something?