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Category Archives: Technology Development

Our latest CMBS product, QuantumRisk CMBS Property Risk Analytics (*1) (12 Mb Excel 2007 worksheet) will soon be available as an annual or monthly subscription or one-off purchase on the 15th of each month. 

QuantumRisk LLC invested more than $250,000 in research to develop the algorithms required to produce this product, CMBS Property Risk Analytics, on a monthly basis. For those of you who are familiar with the raw CMBS data know that this is no small feat.  

Robust,  valid and reliable market data is indispensable for actionable CMBS investment decisions and we are extremely proud to be the only one if not one of the very few companies providing this level of detail for CMBS defaults and losses. Thus providing more insightful commercial real estate business intelligence to our clients. 

On a monthly basis we analyze more than 85,000 properties backing more than 52,000 loans to report default probability, loss severity before recovery, loan to value ratio (LTV), debt service coverage ratio (DSCR), occupancy rates & change in property appraisal value for more than 400 U.S. markets, by property type, by city, by SMSA/MSA by state. Every month! 

The purpose is for sophisticated investors, investment bankers, underwriters and fund managers to know what is happening where it is happening when its happening. Even the muni bond professionals and local & state governments can use this report to figure out what is happening in their local market, as the commercial real estate market is reflective of the local business environment and therefore reflective of the local economy. 

We are also very pleased to announce that CoStar’s Watch List featured some of our May 2010 analytics in their newsletter article, Impact of CRE Distress Varies Widely Market to Market. This article received more than 10,000 reads within the first 24 hours. 

  

How Will Investors Benefit?
Because we analyze more than 85,000 CMBS properties & 52,000 loans on a monthly basis we have had to develop proprietary data algorithms to process this very large amount of data generated by the manual data entry origination-securitization-servicing business process. These CMBS Property Risk Analytics are organized into more than 420 tables for easy instant access of the data directly from your own Excel 2007 models. 

We report CMBS Property Risk Analytics by property type for cities, SMSA/MSA & states where there are 5 or more good property information in that property-geographic-statistic bucket, thereby further reducing the noise in the data. We don’t guarantee the end result is error free because we have no control over the origination-securitization-servicing business process but we do assure you that we have done our very best to give you the very best. 

Because the latest data is available on a monthly basis you get the most up to date information about what is happening across the United States in the commercial real estate world. 

Included in each monthly Excel 2007 report are 8 tutorials on how to use these analytics so that you the subscriber is benefiting from these reports within minutes of receiving them. 

  

What Questions Can Investors Answer?
1.Too much or too little capital?
Are you putting down too much capital with an LTV of 0.6, and want to know what Current (*2) LTVs are in Columbus, OH? 

Answer: You are most likely putting down too much capital as Current LTVs in Columbus OH are averaging 0.71. You could probably reduce your capital requirements by 11% by seeking other lenders. 

2. Realistic income generation?
Will the local or regional economy facilitate an income stream reflective of a DSCR of 1.2 in White Plains NY? 

Answer: Not likely as Current (*2) DSCRs in White Plains NY are averaging 1.03. A DSCR of 1.2 may be acceptable in a few years when the economy improves, but not today. If you were a muni bond professional or in local or state government the DSCRs would provide a quick & dirty indicator of whether you would need to raise taxes or not for general obligation bonds. 

3. Expected loan loss before recovery?
What is my expected loan loss in North Las Vegas, NV?   

Answer: The expected loan loss (before recovery) of North Las Vegas, NV, is 7.45% with a probability of default of 27.59% and severity of loss at 27.01%. As of May 2010 North Las Vegas is a high risk lending environment. Even though Las Vegas is high risk (2.40%, 15.79% & 15.23% respectively) it is less risky than North Las Vegas.  

4. City not found?
OK there is no data about Lewiston, ME, can I substitute with the SMSA Lewiston-Auburn, ME or the state level data? 

Answer: Yes. If a property count for a statistic is less than 5 (*3) we do not report this city, SMSA or state level statistic. 

5. Realistic occupancy?
In the past, CMBS cash flow models have generally assumed occupancies of about 99%. Is this a valid assumption especially since this Great Recession? So what would be a reasonable occupancy rate for Fort Worth TX? 

Answer: As of May 2010 the occupancy rate for Fort Worth TX is 85.97%. This rate will definitely increase as the local Fort Worth / Texas economy improves but at this time any occupancy rate much greater that 85.9% would be considered optimistic. The occupancy numbers presented in our CMBS Property Risk Analytics does not include completely vacant properties. 

6. An estimate of recent appraisal discounts?
What is the average reported property appraisal change (*4) in the state of Texas, over the last 15 months? 

Answer: As of May 2010, in the state of Texas the reported property appraisals are at 61.37% of appraisals done at origination. 

7. Comparative local economics?
Which city poses less commercial property risk? Pasadena CA or Beverly Hills CA? 

Answer:

State:City # Of Reported Properties in City Probability of Default Severity of Loss Expected Loss
CA:Beverly Hills 45 2.22% 2.22% 0.05%
CA:Pasadena 47 0.00% 0.00% 0.00%

With our CMBS Property Risk Analytics we can answer this question conclusively. It is Pasadena CA. 

Notes: 

(*1) “Property Risk Analytics” is the trademark of QuantumRisk LLC. 

(*2)  Current LTV and Current DSCR are calculated using the most recent appraisal values, outstanding balances, NCF DSCRs & NOI DSCRs. 

(*3) The number of properties used to determine a statistic (after processing) varies from 5 to several thousands depending on the size of the city/SMSA/state, property type and the type of statistic being reported.
(*4) Appraisal changes are not as well reported as LTVs or DSCRs. For example, there may 400 SMSA reported for defaults but only 35 for appraisal changes.

  

The Big Surprise: Multi-Property/Cross-Collateralized Loans  

Since we had all this processed data I thought I would check to see if single property loans were at a higher risk than multi-property loans, because from a loss perspective why would we put multiple properties into a single loan or even cross-collateralize a loan?  

I set up 2 pools of loans. The first pool consisted of 42,488 single property loans of all property types and the second of 2,177 multi-property & cross collateralized loans. The surprisingly results below show that multi-property & cross collateralized loans are at a higher risk of default than single property loans. So much for the assumed portfolio diversification effects. With respect to losses, for a better understanding of how portfolio diversification does or does not work see my blog post Loss Containment: Portfolios

 

Mortgage Pool  Mortgage Count  Total Mortgage Original Principal Balance ($1E6)  Mortgage Default Rate  Average Mortgage Severity of Loss without Recovery 
Multi-Property  2,177  18,356  7.49%  7.19% 
Single-Property  42,488  454,809  5.94%  5.65% 

 

Why Do We Recommend a Monthly Subscription?  

With a monthly subscription you can look at trends in the data and your decision making process is enhanced by the knowledge of the local trends. The table below the DSCRs of 3 SMSA/MSA present in the data, Denver-Boulder, CO, Atlanta,GA, and Dallas-Fort Worth, TX.   

      Denver-Boulder, CO     Atlanta,GA     Dallas-Fort Worth, TX 
   Reported Properties  Reported Current DSCRs  Reported Properties  Reported Current DSCRs  Reported Properties  Reported Current DSCRs 
2010/05  112  1.32  237  1.20  212  1.28 
2010/04  239  1.36  534  1.21  520  1.24 
% Change     -2.64%     -0.94%     3.53% 

  

In this example DSCRs, the ability to generate income to cover debt payments, is used as a proxy for business revenue and therefore local economic activity. Comparatively speaking Atlanta, GA has the worst reported DSCRs of the 3 SMSA/MSAs. We can see the different lags in the local economy even though the national economy is experienceing positive GDP growth. The Atlanta, GA, local economy is still contracting (-0.94%) but not as severely as the Denver-Boulder CO local economy (-2.64%). While the Dallas-Forth Worth, TX, local economy is expanding at 3.53%.  

These contractions and expansions will change from month to month, and a general trend will show where to or not to invest in the near term.

  

Summary 

These questions & answers presented above show that with QuantumRisk CMBS Property Risk Analytics there are many news ways to infer what is happenning in the local and state economies that can mitigate risk and reduce expenses. 

Further, we have shown how muni bond professionals, local & state governments can use this data to determine a quick & dirty assessment (and not a substitute for a thorough evaluation) of whether general obligation bonds can be issued without raising taxes and which part of a state needs further attention in terms of recession assistance or business policy matters. 

For a limited time we are making these QuantumRisk CMBS Property Risk Analytics available at a discounted price. Please contact me, Ben Solomon, for further information or to place orders.

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Disclosure: I’m a capitalist too, and my musings & opinions on this blog are for informational/educational purposes and part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. This blog is not intended to either negate or advocate any persons, entity, product, services or political position. Nor is this blog post to be construed as investment advice. 

Contact: Ben Solomon, Managing Principal, QuantumRisk
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Lets face it. The CMBS industry is only expected to be $10-15 billion this year, compared to about $250 billion at its peak in 2007. A lot of good people have left their firms or even the industry, for example in my outreach I found that the senior CMBS staff at Credit Suisse are no longer there, and many other firms don’t expect to get back into this industry for quite a while.

So how do we make profits? We have to look at other sources. One new emerging source is the radical technologies of the future. Well, they will only be future technologies if we work on them today.

One is probably correct to say that these are very high risk ventures, but wait a minute, didn’t we lose 50% of our principal in RMBS and CMBS? Thankfully that puts a new perspective on the risk of ‘radical’ technologies, doesn’t it?

In this post we explore some of the radical physics and technologies that I have been personally involved in. Yes, some of you (especially those of you who have worked with me at Capmark & at Goff Capital) know that I have been working on gravity modification technologies and later photon technologies these past 11 years.

I have published or presented 12 papers on this subject and given 4 radio / Internet interviews. See iSETI LLC; and am particularly proud of 2 papers that are now available as American Institute of Physics (AIP) Conference Proceedings. These 2 papers have be archived at The Smithsonian / NASA Astrophysics Data System:

1. An Approach to Gravity Modification as a Propulsion Technology
(http://adsabs.harvard.edu/abs/2009AIPC.1103..317S)
Paper Link: http://www.iseti.us/WhitePapers/SPESIF2009/SolomonGravityModificationSPESIF(2008-11-14)REVISED.pdf

2. Non-Gaussian Photon Probability Distribution (http://adsabs.harvard.edu/abs/2010AIPC.1208..261S)
Paper Link: http://www.iseti.us/WhitePapers/SPESIF2010/012_Solomon_ED(2009-10-18)01.pdf

In April 2009 I was honored to accept the position of Session Co-Chair of the A.03.1 Theories, Models and Concepts, Frontiers in Propulsion Science track at SPESIF, an AIP conference. The Session Chair is Dr. Martin Tajmar, Head of Space Propulsion & Advanced Concepts, Austrian Research Centers GmbH – ARC.

It is heartening to know that many, many scientist, engineers & technologist are working to improve our world and to reach for the stars. Well managed privately funded research will accelerate this and provide good returns for new investors.

Gravitational Acceleration Without Mass!
The formula on the right, g=tau.c^2, was published in my paper An Approach to Gravity Modification as a Propulsion Technology and derived using extensive numerical models (the same methods used in finance) and a new approach to gravity, that particles deform in a gravitational field. Briefly, gravitational acceleration is an indirect effect of mass, and therefore gravitational mass is not required to calculate the force. What is required to be known is the distortion present in spacetime at the location where the particle is, or tau or dt/dr the change in time dilation divided by the change in distance. Elegantly simple!

This formula has been numerically proven to be correct for gravitational forces, electromagnetic forces and mechanical forces i.e. unification of gravitational with electromagnetic forces that our current physical theories have not been able to reach. Lets think about this. This means that gravity modification as a propulsion mechanism is theoretically feasible!

Michio Kaku, the famous string theorist said (April 25 2008 The Space Show radio interview), that gravity modification is hundreds of years away. That is great news for small business research labs. Why? Because we cannot compete with the multi-billion dollar labs, and therefore, not being fully accepted (just yet) by the main stream physics community gives us breathing space to pursue our research to commercial success.

Therefore, we can expect new propulsion technologies, storage technologies – by slowing down time, new force field technologies, new solid-state gravitational accelerometers and much, much more.

Non-Gaussian Photons? What is That?
Quantum Theory is based on the premise that a particle’s probability distribution is a Gaussian distribution. The familiar Bell Curve or Normal distribution is the most famous member of this family of distributions.

In my paper Non-Gaussian Photon Probability Distribution, I showed that the photon’s probability distribution is not a Gaussian function but a modified Gamma distribution. As a consequence I was able to present shielding, cloaking and invisibility as different manifestations of this one and the same modified Gamma distribution. This also suggests new ways of looking at quantum entanglement. All this is done without taking into consideration the photon’s electromagnetic nature. This is a radical shift in photon modeling.

What does this mean? We can look forward to new materials technologies, such as cloth-like radiation shielding materials for space exploration, etc.

The Book

My book, An Introduction to Gravity Modification: A guide to using Laithwaite’s and Podkletnov’s experiments and the physics of forces for empirical results, (Universal Publishers, Boca Raton) published in 2008, presents what the physics of forces would look like given gravity modification.

The book details the work of selected experiments & researchers, Laithwaite (British experiments in the 1970s), Hayasaka & Takeuchi (Japanese experiments in the 1980s), Podkletnov (Russian experiments in the 1990s), and Luo, Nie,  Zhang, & Zhou (Chinese experiments in the early 2000s).

 In the 1970s Prof. Laithwaite, Heavy Electrical Engineering, Imperial College, UK,  showed that a rotating-spinning wheel would lose weight. His work was largely ignored because no one could mathematically explain why. I solved this and the equation is presented in the book. This could only be solved by assuming that Non-Inertia, Ni, fields exists.

It is important to note that in the 1990s Podkletnov was the first to bring to our attention the possibility that a spinning superconducting disc could have gravity modifying effects. However, his published papers are scant on technology details. The book provides a reverse engineering of why Podkletnov observed gravity shielding effects, using my findings that gravitational acceleration  is an indirect effect of mass.

If you chose to purchase this book, please bear in mind that there are some typo errors and it needs some revisions to include Non-Gaussian photon probability distributions. I expect to revise the book by December 2010, if I do get the time, else it will be next year.

The book is available directly from Universal Publishers or on Amazon (read the reviews).

Funding Summary
The Wall St. crash of 2008, the mortgage crisis, and severe asset deflation, tells us that the perception of risk rather than actual risks usually determines our investment decisions.

From my own personal experience with the grants process at the National Science Foundation I infer that it is difficult to get funding for any project that is not directly related to Relativity, Quantum Theory or String Theory. This is not surprising given that it is tax payer supported and there is a need to prioritize and be accountable for the disbursements. Therefore radical technologies will require private investors.

To get an idea of the size of the investment opportunities in the US, the 2010 NSF budget is $6 trillion (12 zeroes), and the size of the 2008 DoD SBIRs was $1.2 billion, other SBIRs/STTRs are estimated to around $2 billion. Therefore, innovation funding in the US is approximately $6.5 trillion not including internal corporate funding. Compare this to 2007 CMBS of $250 billion and gross U.S. issuance of agency & non-agency MBS of about $2 trillion. This reflects a huge opportunity in innovation research funding if we know how to tap it.

But wait, this now famous photograph shows 11 of Microsoft’s early pioneers. Who would have guessed…

If one is willing to invest patient money into radical high-risk technologies of the future, there are a lot of opportunities. In my opinion radical technologies can have higher sustainable rewards. 

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 About QuantumRisk
QuantumRisk provides the following services for investment companies, dealers & underwriters, fund managers, major municipal issuer(s) and corporate clients (no retail clients),

1. Structured Finance: 

1.1 CMBS Loss Vectors & Black Swans (more)

1.2 CMBS Defeasance Structuring with Prepayment Charges and Yield Maintenance Analysis.

1.3 Municipal Tax-Exempt & Taxable Bonds Refunding Analysis including Escrow Analysis & Structuring. 

2. Management Consulting:

2.1 Financial Analysis & Modeling
2.2 Business Process Reengineering
2.3 Business Strategy

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Disclosure: I’m a capitalist too, and my musings & opinions on this blog are for informational/educational purposes and part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. This blog is not intended to either negate or advocate any persons, entity, product, services or political position. Nor is this blog post to be construed as investment advice.

Contact: Ben Solomon, Managing Principal, QuantumRisk

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