PERE Forum Europe 2009: Citi forsees $300bn of commercial debt defaults

Property Investors’ president and CEO Roger Orf highlighted the increased availability of cheap commercial real estate debt packages as one of three investment opportunities of tomorrow at the PERE Forum: Europe.

Roger Orf, president and chief executive officer at Citi Property Investors, told delegates at the PERE Forum: Europe today that $300 billion of commercial mortgages could default.

Most of the debt, he said at the conference in London, had been originated during the 2006 and 2007 vintages at the height of the investment market.

“For those of us who have run the numbers,” he said, “it is possible that as much as $300 billion could default.”

Orf said a large problem would be exactly who assumes the resulting losses. He said: “The real problem, and I’m experiencing this personally, is that the securitisation of assets and spreading of risk is masked. Who will take on these losses?

“Paranoia of risk has spread systematically through the financial markets. Until the credit rating of originators and holders of debt becomes clear it is likely that mortgage markets will be restrained in terms of new origination.”

Orf said the “commercial mortgage market as we know it has ceased to function” leading to very limited availability in debt, particularly in loans of more than $100 million in the US or £50 million in the UK.

Other than debt, Orf also tipped residential projects being sold at “bargain basement” prices and a bottoming out of real estate securities market would create further viable paths for future investment.

Orf has a track record in debt investment. He was hired by John Grayken at Dallas-based Lone Star Funds in March 2002 to lead the distressed investor’s European platform. While there, Orf saw the firm buy up $4.8 billion in loans from now-troubled Hypo Real Estate. To learn more about his four-year stint at the firm, see PERE’s profile of John Grayken in this month’s issue.