Are You Ready For This?
Pimco's Bill Gross estimates mortgage rates would rise 300 to 400 basis points without government owned Fannie Mae and Freddie Mac assisting the housing market.   This is because the two agencies guaranteed, through mortgage purchases and subsequent inclusion in mortgage backed securities, 95% of the mortgages created during the past year.  Fannie and Freddie don't guarantee a borrowers mortgage payments, which would create moral hazard, they buy mortgages from banks and include the mortgage in huge mortgage pools, which are sold as bonds.  Fannie and Freddie therefore guarantee the bonds, not the underlying mortgages. 

Without the agencies' mortgage securitization program, there would be much less capital for mortgage lending.  Banks would have to hold the mortgages in their portfolio, leaving much less capital for new mortgages, and borrowers would be subject to strict underwriting due to limited capital.  This makes the assumption that private mortgage securities would not replace the agencies' role of buying mortgages from banks.  But even if private mortgage pools emerge, it is unlikely they'd completely fill the void of the agency debt, and they would not have the guarantee of agency debt.  I have been telling people that while no one likes the idea of government in the mortgage business, are they ready for mortgage rates 300 to 400 basis points higher than current rates?  This weeks' poor housing numbers would look like like boom times compared to numbers if long term mortgage interest rates suddenly jumped from 4.5% to 8.5%.  The price adjustment to housing would obliterate the economy and wipe out the wealth of even those that did not buy in the bubble period of 1998 to 2007.

More Housing
This morning's exisitng home sales numbers for July were bad.  The decline was worse than projected, but in line with the "whisper"numbers.  Calculated Risk has a good summary of the sales figures and excellent supporting graphs.  The jump in inventory stood out to me.  There is now 12.5 months of supply, where the average is closer to 6 or 7 months, which is going to hinder price increases.  I am trying to look at the bright side.  The annualized home sale rates was 3.8 million homes, which breaks down to 316,000 homes sold.  I am not 100% positive, but think I remember hearing on Bloomberg radio earlier this year that the normal housing demand. based on demographic factors alone, is closer to 500,000 or 600,000 home sales per month.  July's figures were well below the sustainable demand. Homes sales have to start increasing just to reach their sustainable average.  Mortgage rates are historically low, and I don't see this changing in the near future.  Low rates will attract buyers at some point.  (Existing home owners that refinance at current low rates will have extra monthly cash, which is positive for the economy, but this is not a subject for this post.)  The housing market will benefit in the coming months from low mortgage rates and pent-up demand (i.e. home sales reverting to their mean), at least that's my opinion.

The impact of the first time home buyer tax credit, which expired in April, inflated sales figures last year and earlier this year, and are weighing down numbers now.  Calculated Risk said all along that the tax credit was providing an unsustainable boost to the housing market.  But I didn't read or hear too much else about impact of the artificial demand.  CR was correct, and today's numbers should not too shocking.   I hope the government resists the urge to step into the housing market again.  Potential home buyers waiting for further government assistance are going to miss a great opportunity.

Housing Article
Here is a New York Times article I have seen linked several places this morning.  The article jumps right to the point:

But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.

I hate "new paradigm" thinking.  When experts say "never again," that's a sign that there will be an "again."  I remember sitting through a number of presentations in the late 1990s where "experts" said that the tech stocks were experiencing a new paradigm,  and that traditional equity valuation methods were a thing of the past, or that technology was its own asset class, and that income investing made no sense, to name just a few absurdities spawned by the tech boom.  These experts' advice looked reckless when the stock market tanked in the early 2000s and tech companies without revenue or earnings went away.

Reading the article reminded me how the tech pundits overreached.  There are no new investing paradigms, just variations on existing principals.  Investment bubbles and bubble thinking are an investing paradigm and have been around for thousands of years.   Housing experienced a bubble in the 2000s (much like tech in the 1990s), and people used their homes to finance lifestyles, counting on rising market values and easy credit.  Real estate gurus, like tech stock gurus, were a dime a dozen.  Those days are gone, and the home prices dropped significantly.   People that bought homes during the bubble will have a long hold period, but home buyers today should fare well, especially if they take advantage of current low interest rate mortgages.

People used to buy a home, paid their mortgage, and at the end of mortgage owned the home and all its equity, which was either passed on or helped fund a retirement.  The notion of waiting thirty years for equity evaporated in the 1990s and 2000s.  Banks and mortgage brokers invented methods that allowed homeowners to tap their home equity, which effectively turned homeowners into renters.  A return to patience in home ownership is not a bad thing and will prove rewarding.

American Crapital Development
I received an email solicitation from a secondary tenant in common market maker this afternoon.  The information was on an American Capital Development deal originally syndicated in June 2006.  The email did not offer too much data on the deal - 212 units in Washington State and the equity is being offered at $67,591  -  but what stuck out to me was it was not paying a distribution.  Why is that not a surprise coming from this sponsor?

10-Q Season Is Here
How exciting!  I will be reviewing select 10-Qs over the next few days and will pass along any interesting information.

Freddie and Fannie
Here is an interesting article I saw this morning.  Both Freddie and Fannie are fun political whipping boys, but this paragraph underscores their importance to the housing market:

More important, shutting down Fannie and Freddie and having the private market step in, as politically popular a sound-bite as that may be, is economically unfeasible. For better or worse, Fannie, Freddie and Ginnie Mae were behind 98 percent of all mortgages in this country so far this year, according to the Mortgage Service News. Pulling the rug out from under them would be pulling the rug from under the entire housing market as it continues to struggle.

I think we're stuck with these two firms, in some form, for the near term, unless everyone is ready for a huge drop in housing prices due to lack of financing.  PIMCO's Bill Gross had some provocative comments on Freddie and Fannie this morning that I need to read.

Bailout Worked
Here is a summary of a new study by economists Alan Blinder and Mark Zandi that gives evidence that the Troubled Asset Relief Program (TARP), and to a lesser extent the stimulus package, worked in keeping the economy out of a depression.  I thought TARP made sense at the time and felt if prevented a complete financial meltdown: 

In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.

In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.

Even with the "bailout" the depth of the financial crisis is shocking:

Mr. Blinder and Mr. Zandi emphasize the sheer size of the fallout from the financial crisis. They estimate the total direct cost of the recession at $1.6 trillion, and the total budgetary cost, after adding in nearly $750 billion in lost revenue from the weaker economy, at $2.35 trillion, or about 16 percent of G.D.P.

By comparison, the savings and loan crisis cost about $350 billion in today’s dollars: $275 billion in direct cost and an additional $75 billion from the recession of 1990-91 — or about 6 percent of G.D.P. at the time.

Politicians from both parties need to push back against those that say TARP was a disaster, and those that voted for TARP should be proud.   This article from the New York Times details the backlash against politicians who voted for TARP, including Utah's conservative Bob Bennett who has already been voted out by members of his own party.

Taxes, Deficit Hawks and What's Wrong With The Media
Here are is an interesting blog post from the Financial Times' Martin Wolf that debunks supply side economics.  It is worth reading, especially in light of the pending expiration of the Bush tax cuts.  Here is an excerpt:

True, the theory that cuts would pay for themselves has proved altogether wrong. That this might well be the case was evident: cutting tax rates from, say, 30 per cent to zero would unambiguously reduce revenue to zero. This is not to argue there were no incentive effects. But they were not large enough to offset the fiscal impact of the cuts (see, on this, Wikipedia and a nice chart from Paul Krugman).

Indeed, Greg Mankiw, no less, chairman of the Council of Economic Advisers under George W. Bush, has responded to the view that broad-based tax cuts would pay for themselves, as follows: “I did not find such a claim credible, based on the available evidence. I never have, and I still don’t.” Indeed, he has referred to those who believe this as “charlatans and cranks”. Those are his words, not mine, though I agree. They apply, in force, to contemporary Republicans, alas,

Since the fiscal theory of supply-side economics did not work, the tax-cutting eras of Ronald Reagan and George H. Bush and again of George W. Bush saw very substantial rises in ratios of federal debt to gross domestic product. Under Reagan and the first Bush, the ratio of public debt to GDP went from 33 per cent to 64 per cent. It fell to 57 per cent under Bill Clinton. It then rose to 69 per cent under the second George Bush. Equally, tax cuts in the era of George W. Bush, wars and the economic crisis account for almost all the dire fiscal outlook for the next ten years (see the Center on Budget and Policy Priorities).

No one likes paying taxes and I want the tax cuts that are set to expire to be extended.  Politicians need to get serious about spending cuts, but this is an issue neither side of the aisle wants to deal with.  The areas that need cutting are too popular with voters.   Wolf argues that this is what's so seductive about supply side economics, "Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue."   It's too bad the theory has not worked.  It is my opinion that the economy is too weak to absorb any tax increases, so I'd be surprised if the Bush tax cuts are not extended. 

Rick Santelli, a CNBC on-air editor, was on NBC's Meet the Press yesterday.  He is a huge deficit hawk and stated that he was still against TARP and the stimulus package, and pretty much any government economic assistance that adds to the deficit.  Rick has valid point and his opinions are well known to anyone who watches CNBC.  (I feel that TARP was hugely beneficial in preventing a larger financial meltdown, and that the ultimate cost will be small as most TARP recipients have repaid their loan.)  I like Santelli, he is smart and has excellent analysis, especially on credit markets and interest rates.  I wanted to know his opinion on the expiring tax credits, but Meet the Press host David Gregory chose not to ask Santalli the question, opting instead to ask it to some former Obama administration communication person.  Gregory was obviously turning an economic discussion in a potential political gotcha moment.  The former Obama official gave some convoluted, non-response response, about what you'd expect. 

Gregory failed in not questioning Santelli on the tax cut extensions, especially after asking Santelli his opinion on government spending.  Gregory was practicing political theater, not journalism.  Santelli's opinion on extending the Bush tax cuts is important.  If he is as serious a deficit hawk as he comes across, his answer should be clear - let the tax cuts expire to allow for deficit reduction.  I would have been shocked if Santelli had not given a supply-side answer about the need to extend the tax cuts to allow more money into the economy, and therefore more tax revenue. 

CMBS Returns
Here is an article on the CMBS market from today's Wall Street Journal (not sure where it's behind a paywall).  JP Morgan is leading a $650 million CMBS backed by Vornado Realty Trust, and Goldman and Citigroup are sponsoring a $750 million CMBS backed by Flagship Partners.  The proceeds of both deals will mostly be used to refinance existing debt.

The return of CMBS is encouraging for commercial real estate, but not all are able to get access to CMBS debt.  The market is bifurcated, and I have heard this from several sources, where property owners in major markets with equity and resources have access to capital, including CMBS, while others are not so fortunate.  Here is a quote from the article:

Few expect a rush of new CMBS deals in the near term as the real-estate industry braces for more than $1 trillion of maturing debt over the next five years. While the handful of fresh issues have begun to revive one of the most important funding sources for commercial real estate in the past decade, it will likely provide little solace to owners of hundreds of billions of dollars of office buildings, strip malls and other commercial property now worth less than their mortgages.

This also plays into stabilizing valuations for quality properties, in major markets.  I'll have more on this in a later post, but drop in value for quality properties has been less than the overall market.  So far in 2010, as the article notes, there has been $2.1 billion of CMBS issuance, which is a small amount compared to the more than $200 billion issued in each of 2006 and 2007.

Housing Numbers
The housing numbers released this morning had some conflicting information.  The big news is that housing starts in June fell to their lowest level since October 2009.  A large portion of the drop was attributed to the 22% decline in multifamily building.  Conversely, building permits for multifamily apartments and condos increased 20%.  Interesting.

Miami Condos
Here is an encouraging read from Bloomberg.  The article discusses how Miami's failed condos are having a revival as rentals.  Here are a few informative quotes:

The 7,000 unsold condos in Miami’s core -- a symbol of a building boom that collapsed and dragged the city into recession -- are filling up and giving life to neighborhoods that previously closed after dark. New, year-round residents are cramming into restaurants, nightclubs and bars that didn’t exist a few years ago, and enjoying a lifestyle made possible in part by developers and banks seeking to recoup losses by renting luxury dwellings until the market recovers.

The unsold condos represent almost a third of the 22,079 units in 75 buildings, mostly opened after 2004, tracked in a study released in March by the Miami Downtown Development Authority. The report focused on central neighborhoods including Downtown, Brickell and Wynnwood/Edgewater.  Occupancy rates in the new buildings, including owner- occupants and tenants, increased to 74 percent in February from 62 percent in May 2009, the study shows. 

Effective rents, the amounts actually received by landlords, rose 4 percent in the first five months of the year after falling 2.9 percent during the same period in 2009, according to Axiometrics, whose data tracks professionally managed rental building. Nationally, rents increased 2.75 percent from January to May.  The occupancy rate for Miami climbed to 95.1 percent in May from 93.8 percent a year earlier, Johnsey said.

The overall tone of the article was positive, and one of the few uplifting real estate stories I have read in a while, especially one about Florida.  The article does not touch on issues related to condo associations, whether condo owners are making any money on their rentals, or how the market will react when owners try to sell individual units in a building with mostly renters.

Is This News?
I heard this news about WP Carey replacing its CEO last week.  Here is an excerpt from WP Carey's press release discussing the interim replacement:

Investment firm W. P. Carey & Co. LLC (NYSE: WPC) announced today that board member Trevor P. Bond has been appointed interim Chief Executive Officer effective July 6, 2010. He will remain as a board member but will resign as a member of the Compensation and Audit Committees of the Board.

Mr. Bond has served as an independent director of the company since April 2007 and served as director of several of the company's CPA® REIT programs from 2005 to 2007. He has over 25 years of management experience in several sectors, including finance, development, investment and asset management across a range of property types, as well as direct experience in Asia. Mr. Bond has been the managing member of Maidstone Investment Co., LLC since 2002, a private investment vehicle investing in real estate limited partnerships. Previously he served in several management capacities for Credit Suisse First Boston from 1992 to 2002, where he was co-founder of CSFB's Real Estate Equity Group, which managed approximately $3 billion of real estate assets. Prior to CSFB, he served as an associate to the real estate and finance departments of Tishman Realty & Construction Co. and Goldman, Sachs & Co. in New York. Mr. Bond received an M.B.A. from Harvard University.

Mr. Bond will serve as interim CEO until a permanent successor is named. Mr. Bond's appointment follows the resignation of Gordon F. DuGan, also effective July 6, 2010. Mr. DuGan said that his resignation is based on a disagreement with respect to the degree of authority and control of the Chairman and a disagreement with the Chairman on the strategic direction of the company.

Wm. Polk Carey, Chairman of W. P. Carey & Co., said, "Trevor brings to this role extensive management experience and a strong commitment to our investors and tenants. I thank him for stepping into this interim position. I wish all the best to Gordon DuGan, who has served W. P. Carey with skill and intelligence for many years. Though Gordon and I have not been strategically aligned in the recent years, I remain an admirer of his abundant investment management and general business talent."

I am sure there is more to this story, but it appears that if your name is on the company, you get to make the decisions.

WSJ on Dividend Capital's Total Realty TrustLast Wednesday's Wall Street Journal (July 7, 2010) had an article on Dividend Capital's Total Realty Trust's $1.3 million acquisition of thirty-two office and industrial properties from iStar Financial.  The article's headline, "Sign of Recovery? Or Not? Successful Sale Had Help," gave the impression that there was something wrong with the deal.  The author's idea of trouble with the transaction was that it included Class A properties with some lesser industrial properties and required substantial equity.  If you acquire thirty-two properties, not all can be trophy properties.  The lesser properties are industrial properties leased to the likes of Google and Fed Ex.  The leverage was 64%, with the REIT throwing in $443 million (the math does not match perfectly for some reason).  The author says that during the boom this deal would have qualified for 90% financing.  That amount of leverage is unavailable in today's market so the point of reference is a red herring.  The portfolio is 99% occupied, has an average lease term of over seven years and was acquired on an 8.1% cap rate.  These figures appear positive for the REIT.

Here are a couple of points the article did not address that I think are worth mentioning.  Total Realty Trust had $489 million of cash at March 31, 2010.  The $443 million of equity utilized most of this cash.  The acquisition had $105.6 million of mezzanine financing provided by iStar.  How does Total Realty Trust plan to repay this mezzanine debt?  It's not raising any more equity and will need to either refinance assets or sell assets.  I don't see it being able to refinance legacy assets and receive any extra cash to apply to the mezzanine loan. 

In the first quarter Total Realty Trust paid out $27,609,000 in distributions, but it only had $15,552,000 of operating cash flow and $14,293,000 of Funds From Operations as defined by the REIT.  How will this huge transaction make up this distribution shortfall?  There is limited cash remaining to support distribution shortfalls so the new portfolio is going to have to generate significant cash flow.

Coverage Myopia
The broker / dealer community's focus on distribution coverage ratios is myopic.   Coverage ratios are important and a clear sign of a REIT's health, and a harbinger future distributions, but they are only a piece of a larger puzzle.  Most non-traded REITs have ideas to one day list on an exchange (or merge or even sell their portfolios outright).  If a REIT is going to list on an exchange and hold its value, not only does it need adequate distribution coverage, it needs growth in its Funds from Operations (FFO).  Broker / dealers need to expand their analysis and start looking at FFO growth in addition to distribution coverage ratios.  REITs are stocks, and stocks trade on future growth.  It is not enough to cover a distribution from operations, the distribution and underlying FFO needs to grow for a REIT to hold its value.

I know that many non-traded REITs have appalling coverage ratios that require immediate attention, and some coverage ratios are telegraphing unsustainable distributions.   But for REITs that are fully invested and have sufficient coverage ratios, FFO growth needs to be the focus.  A portfolio of properites with flat long-term leases may look appealing from a safety and coverage ratio standpoint, but over time a REIT with this type of portfolio will trade at a lower FFO multiple (and lower valuation) than a similar REIT that has lease rate growth.   

Another way to view FFO growth is to look at in context of a REIT's estimated time horizon.  A REIT that has a five-year window to list or pursue other liquidation options will likely extend the hold period without FFO growth.  This is because the market will discount this non-growth REIT.  Even the most avaricious REIT sponsor will think twice about listing a REIT that will trade at a significant comparative discount to its initial share price due to limited growth potential.

Austerity Gains Traction
Here is another New York Times article on global austerity measures.  I am not convinced this is smart or prudent economic policy at this point of the economic recovery.  I understand the arguments for cutbacks and am all for debt reduction, but don't feel the economy is fully recovered and at a point where it can depend on corporate growth alone.  Politicians will pay for their decisions if unemployment stays high and growth remains sluggish.  Politicians in the U.S. don't have the courage or conviction to make cuts that will really lower the deficit, such as in Social Security, Medicare or defense, there are just too many vocal, voting parties supporting government spending in these areas.   No US politician, not even a lame duck, would dare float the idea of a tax increase to tackle the debt.  I like to look at the stock and bond markets as good barometers of the future.  The yield on the Ten-Year Treasury is under 3%, which indicates the market is not afraid of current debt levels and that inflation is not a concern, and the recent down trend in the stock market is over concern about the slowing economy due to lack of stimulus spending.  Ceding the economic growth mantle to China and India is bad economic policy.

Hines Distribution Cut
The news that Hines REIT is cutting its distribution is rippling through the broker / dealer community this morning.  Hines is dropping the annualized rate to 5% from 6%.  This is not a huge cut in the whole scheme of non-traded REIT distribution cuts.  Here is text from an email sent to broker / dealers today and the 8-K filed that was filed with the SEC:

The Hines REIT Board of Directors and management team has elected to reduce the dividend on the Hines REIT from 6% to 5% beginning July 1st.  Our management and board of directors believe that aligning our distributions with funds generated by our operations, including the results of certain property sales, and not with funds from offering proceeds or borrowings, is an important objective for the Company. We are proud that, other than our initial quarters of operations, we have been able to meet that objective.

Our portfolio continues to be well leased overall at 90%; however, given the economic environment, we have experienced a decline in occupancy and rental rates over the last few quarters, which have reduced our net operating income as we re-lease expiring space to new or existing tenants. Unfortunately, the downward trends in real estate fundamentals may continue for several more quarters before they begin improving, and the rebound may be slow. As a result of these market conditions, our board of directors has decided to reduce our current annual distribution rate from 6% to 5% (based on our last share price of $10.08 per share)* effective for the quarter beginning July 1, 2010, in order to maintain our practice of aligning distributions with our operating performance as described above. The reduction is not the result of liquidity needs such as debt maturities or pay downs or capital expenditure requirements of our properties. In fact, our liquidity position is quite solid and we have relatively low levels of debt maturities in the next 24 months. The reduction simply better aligns our distributions with our forecasted operating performance over the near term.

The language above sounds prudent, but the Hines REIT's second quarter 10-Q is now a must-read (the excitement is palpable) to look behind the spin.  Bear in mind that Hines REIT stopped its share repurchase plan late last year, albeit the REIT's liquidity was the typical non-traded REIT limited liquidity.  Hines REIT also has the distinguishing feature of not having a set liquidity plan, such as a time frame to sell assets or list shares on an exchange.  Investors are going to have to learn to live with the REIT's 5% yield, or whatever yield they can get.  I guess my bigger question is given the declining distribution rate and Hines' statement on declining occupancy and lease rates, how valid is Hines REIT's Net Asset Valuation of $10.08 per share? 

Irish Austerity
Here is an article from the New York Times that I found depressing but informative.  Ireland's economy in the mid-2000s, despite its embrace of technology firms and their skilled, high paying jobs in the 90s, became driven by real estate development and a housing bubble.  When the housing market collapsed and the credit crisis started, Ireland was rocked by recession.  In response Ireland instituted wage cuts and tax increases without any stimulus spending.   Its economy is still in the tank nearly three years on, with unemployment at 13% and growth not expected to return until 2012.  Here is a passage from the article:

Rather than being rewarded for its actions (spending cuts and tax increases), though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those out of work for a year or more — have more than doubled, to 5.3 percent.

Now, the Irish are being warned of more pain to come.

Policy makers around the globe should view the Irish experience as a warning.  National debts are not good, but sometimes the alternatives are worse.  The article ends predicting that Ireland's government will likely get voted out of office in 2012.

Sea Change?
The public, non-traded REIT business is competitive.  I am not sure how many sponsors are fighting for broker /  dealer shelf space and investor dollars, but it must be several dozen, with, I am sure, more programs in registration.  Competition is generally good for consumers, but this has not always been the case in the non-traded REIT business when it comes to fees.  The fees across the various REITs are remarkably similar.  This may be starting to change.

Grubb & Ellis has eliminated internalization fees on its two public, non-traded REITs.  Another REIT sponsor quickly followed suit.  In conversations with more REIT sponsors, the elimination of the fee is being watched.  If Grubb & Ellis can grab market share, you can bet most non-traded REIT sponsors will ditch this fee.

This is a fee that is hard to quantify when a REIT is raising capital, because in all likelihood it won't be paid for years and the amount of the fee cannot be determined until the REIT decides to prepare for listing or liquidation.   These fees are huge, despite the inability to calculate them during the early stages of a REIT.  Some REITs don't even disclose potential internalization costs in their prospectus' fee section, instead disclosing it with amorphous language in the business plan or risk sections. 

Most REITs are advised by an affiliated company.  When a REIT's board of directors decides to list the REIT on an exchange it must acquire its advisor, a process known as internalization.  Therefore, a value must be placed on this advisor, and then the REIT, typically using its shares, acquires this advisor.  The valuations are determined by the advisor, and many REITs will get a rubber-stamp third party confirmation of the valuation.  On large REITs, the advisor can get a windfall of hundreds of millions of dollars while investors get their equity diluted.  Some past internalizations have paid REIT advisors up to $300 million.  It's not hard to see who's the beneficiary in an internalization transaction.

If Grubb & Ellis' move starts a fee war, this is good for investors.  Hopefully other sponsors will follow suit and start lowering or eliminating more immediately tangible fees and expenses, like offering costs, acquisition fees, property management and asset management fees and compensation to brokers selling the REITs.  Lower fees put less pressure on the portfolio to meet dividend coverage ratios and should allow the REITs to acquire better properties.

Bloomberg on Non-Traded REITs
Here is a Bloomberg article on non-traded REITs.  It's a harsh, but fair article, and it gets its facts right. It is well worth the read.

Extended Stay
Here is an article from the Financial Times.  It summarizes Centerbridge's and John Paulson's $4 billion acquisition of the bankrupt hotelier.  Lightstone Group bought Extended Stay in April 2007 for $8 billion, using mostly CMBS debt.  The debt was $4.1 billion of senior debt and $3.3 billion of mezzanine debt.  The Centerbridge deal will repay the senior debt, but wipe out the mezzanine debt, of which taxpayers owned $750 million.  Here is how the CMBS structure complicates deals that go bad:

The Extended Stay bankruptcy offers a rare insight into how securitisation complicates the Chapter 11 process. There were 18 separate classes of commercial mortgage-backed securities worth $4.1bn.  According to documents, 90 per cent of each class would have to approve any agreement - an arrangement that could have delayed a settlement indefinitely.  But the servicer in charge of the trust agreed to an arrangement that allowed pivotal classes of debtholders to control the outcome.

The article does not mention this, but I think these bankruptcy and purchase hinged, in part, on Lightstone's founder, David Lichtenstein, being relieved of approximately $100 million of personal liability in the event of default.