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By Christopher J. Petherick

An epidemic of home foreclosures has been pummeling residential markets since the U.S. economy collapsed in the summer of 2008. So far, the commercial sector has remained largely unscathed. However, a recent bankruptcy filing by one of the largest commercial real estate brokers in the country may be signaling that this is all about to change and analysts are bracing for the fallout.

To those who monitor the commercial real estate sector, Capmark Financial Group’s chapter 11 filing on October 25 was no surprise. For the past six months, investors have been waiting patiently for the commercial real estate sector to follow the same downward trend as the residential market.

Like many other large-scale brokers, Capmark had made vast sums of money by aggressively selling loans for a tidy profit. In a short time, the company had built itself into a billion-dollar firm, growing out of a heavily leveraged buyout deal orchestrated by Wall Street firms Kohlberg Kravis Roberts and Goldman Sachs to purchase the assets of General Motors’ troubled financial division, GMAC.

But Capmark’s winning streak came to an abrupt end following the market collapse when property values started into a downward spiral—with no end in sight. As the economy turned for the worst, the number of defaults on loans

started to rise, until at least one-sixth of all of Capmark’s commercial loans were listed as several months delinquent.


According to Bloomberg News, by the time of its bankruptcy filing, Capmark listed $18.5 billion in debt, including $6.9 billion that was coming due in 2010 and another $8.54 billion due in 2011.

“As commercial property prices started falling, loan defaults accelerated,” reported Bloomberg. “Payments were at least 60 days late on $4 billion of the $24.1 billion in loans Capmark listed as managed assets on June 30. That was up 166 percent from December 31.”

Out of 234 properties that Capmark had financed, a whopping 62 had reportedly fallen into foreclosure, default or distressed status.

In essence, Capmark found itself like so many others who gambled in real estate and ended up owing more on the loans it listed as assets on its books than the value of the properties it had to back them. When Capmark could no longer pay its debtors, which mainly consisted of other large banks like Citibank, it filed for chapter 11 protection.

Christopher Petherick is a journalist and publisher based in Maryland. For more information, see his website at or write directly to BRANDYWINE HOUSE BOOKS AND MEDIA, P.O. Box 638, Cheltenham, MD 20623. Petherick encourages all readers with Internet access to sign up for AFP’s free weekly email newsletter. It’s loaded with house news and special offers available only to newsletter recipients and AFP web site users. See

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(Issue # 45, November 9, 2009)

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