Historically, according to the Federal Reserve (see Fed Reserve website for statistics on commercial loan defaults), no more than 10% of non-performing loans get charged off (i.e. principal loss) in bad times. In normal times charge off rate is 2-5%. The worst that has ever happened was in the 1992 real estate recession where 25% of non-performing loans were charged off. Now 2-5% x iStar's current NPLs of 640M = 16M-32M. iStar's management are projecting MAX/Worst-case-scenario charge off of only 180M (see Q3 earnings transcript).
iStar generates earning power of at least 350M-400M per year in cash income. A 180M loss should easily be covered, and iStar should AT LEAST break even in the event of a "worst-case scenario" 1932 depression.
In addition, iStar has a 20-25% equity to assets ratio, with equity at 3.2B. Most banks have an equity to asset ratio of 5-7% ... (e.g. see Citigroup right now)
iStar should easily survive the credit crunch, and a recession and things should return to trend thereafter.
...again...very good post, with back up facts! I agree that commercial real estate is doing fine. Over at AHR, the default rate on their commercial portfolio is deecreasing, now under 1% I think. Diversified commercial real estate is the bedrock of the economy. Almost every business pays rent on offices, or warehouses, or retail stores, along with over 30% of the population that pay residential rent. If a great depression hits, commercial real estate would be the last to fall, not the first.
I am long, but there a problem with the analysis. An average of 67% says only a little about the quality of the book. If 1/2 was worth 100% LTV and 1/2 was 33%, LTV the average is 67% LTV. If every loan goes bust and recovers 80% then the portfolio loses 10% of value. Yet if the portfolio has 100% loans with 67% LTV, so the same average, and every loan defaults with 80% recovery, the portfolio loses 0. Do you know if there are any statistics on the dispersion of loan LTV's?