Leon Black of Apollo Capital is quoted in the Financial Times warning that commercial real estate losses will create a “black hole” in bank balance sheets.

Y’think? As a matter of fact, I used the same term myself some months ago.

Here is the spread to LIBOR of 5-year AAA-rated CMBS securities:

Spreads have widened from LIBOR +100 to about LIBOR +800 for the top of the capital structure, that is, heavily loss-protected securities. Given mark to market requirements, banks already have marked these securities down. Not all commercial property lending, to be sure, has been securitized. Banks that own the whole unsecuritized loan are exposed to losses far more than banks that own the security. Banks that own commercial mortgage backed securities rather than whole loans probably have written them down arleady; loans on banks’ books may not have been written down. For most of the large banks, most of the commercial mortgage effect probably has been reflected in last year’s disastrous results.

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