Economy Watch: Capmark Files for Bankruptcy

By: Dees Stribling, Contributing Editor

Major commercial real estate lender Capmark Financial Group Inc. and various subsidiaries have filed for Chapter 11 bankruptcy, which last month the company had warned was coming. The move will allow the Capmark to reorganize and, very likely, delay selling off some of its $20 billion-plus in assets at less-than-desirable prices.

“Capmark and its filing subsidiaries had in excess of $500 million of cash and cash equivalents… available to fund its operations,” the company said in a statement. Capmark recorded a loss of $1.6 billion in its most recent fiscal quarter.

The reorganization doesn’t bode well for the company’s owners, however. Capmark used to be GMAC’s commercial property arm until a group of investors—including Kohlberg Kravis Roberts & Co, Goldman Sachs Capital Partners and Five Mile Capital—bought about three-quarters of it in 2006 for $1.5 billion, presumably a bubble price.

Existing Home Sales Spike

Put together low prices (at least compared with the mid-2000s housing bubble) and an $8,000 tax credit that may or may not be extended past the end next month, and you get a steep rise in the number of existing homes sold in September compared with August. As it happens, the rise was 9.4 percent, according to the National Association of Realtors, the largest spike since that organization began tracking existing home sales in 1999.

Last month’s spike puts the annualized rate at 5.57 million units, which is the highest level since July 2007, a time when housing sales were already on the decline, though the magnitude of the bust wasn’t apparent. September 2009 sales were up 9.2 percent from the same month in 2008.

It’s no coincidence that the national median existing home price is now $174,900, down 8.5 percent from September 2008. That average masks regional variations, however, especially the fact that in the western states – led by California – home prices have dropped about 15 percent in the last year.

A Hundred-Plus Banks Washed Up, More to Come

Total 2009 bank failures shot 100 over the weekend with the closure of no fewer than seven banks, three in Florida and one each in Georgia, Illinois, Minnesota and Wisconsin. No one expects the closures to stop anytime soon, as banks reap that which they sowed by making commercial real estate loans under erroneous assumptions about ever-increasing real estate valuation in the mid-2000s.

The banking industry’s CRE troubles are no secret, either. “The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters is in CRE lending,” Federal Deposit Insurance Corp. chairman Sheila Bair said last week to the Senate subcommittee on financial institutions.

Wall Street had a glum Friday, with the Dow Jones Industrial Average down 109.13 points, or 1.08 percent, down below 10,000 for the first time in recent days. The S&P 500 was down 1.22 percent, while the Nasdaq only lost 0.5 percent.