The Real Estate Crisis Has Only Just Begun | Dan McNamara

Dan McNamara, veteran commercial MBS trader and founder of Polpo Capital, joins Forward Guidance to argue that the commercial real estate (CRE) default cycle has only just begun. McNamara notes that the fall of Silicon Valley Bank (SVB) and Signature Bank is causing regional banks to curb lending to commercial real estate projects, and that as a result many property developers will strategically default and walk away from the buildings. McNamara shares why he has been shorting the riskier tranches of CRE loans via the CMBX, and he tells Jack Farley why the cascade of defaults he expects will cause tremendous damage to the securitized market for CRE loans. To be clear, this interview is devoted almost entirely to non-agency securitized lending against commercial real estate, NOT residential lending (home mortgages) or MBS that carries an implicit/explicit guarantee of a government agency such as Fannie Mae or Freddie Mac.

Key terms for this interview:

CRE = Commercial Real Estate
CMBS = Commercial Mortgage-Backed Securities
CMBX = a synthetic tradable index referencing a basket of CMBS
CLO = Collateralized Loan Obligation
LTV = Loan-to-value ratio

Filmed on April 11, 2023.

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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
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Timestamps:
00:00 Intro
08:01 Office Properties Could Decline by 50% Or More
15:25 Defaults WIll Lead To Forced Selling
20:03 Why Rising Interest Rates Has Imperiled Many Commercial Real Estate Deals
23:25 Regional Banks Are Curbing Lending After Fall of Silicon Valley Bank (SVB)
30:01 Differences Between This and The Great Financial Crisis (GFC) And "The Big Short"
35:03 Shorting Tranches of Commercial Mortgage-Backed Securities (CMBS)
42:09 Views on Highly-Rated Tranches (AAA- and AA-)
45:03 Interest Rate Risk (Duration) Of Commercial Mortgage-Backed Securities (CMBS)
47:45 "We Are Pretty Market Neutral”
50:17 "We Think The Credit Curve Is Still Too Flat"
54:44 The "Refinancing Game" Is Over
01:11:54 If McNamara Is Right About Commercial Real Estate, How Systemic Will This Be?