Capmark Files for Bankruptcy

Commercial lender Capmark, cobbled together from GMAC units by a group of private equity investors, has filed for Chapter 11 bankruptcy protection.

The company had warned on Sept. 2 that it might have to take this step.

The bankruptcy can be seen as a further sign of the weakness of the commercial real estate market. Capmark--owned by Kohlberg Kravis Roberts & Co., Goldman Sachs Capital Partners and Five Mile Capital Partners—is one of the nation’s largest lenders to office tower, strip mall and hotel investors and developers.

And that commercial real estate market has continued to grow weaker in the past year, marked by bankruptcies of such large players as mall operator General Growth Properties and Extended Stay Inc., the hotel chain.

The default rate on commercial mortgages held by U.S. banks is at its highest rate since 1994. Capmark is one of the biggest commercial lenders, with more than $10 billion in originations and servicing more than $300 billion in debt.

Banks across the country have been furiously reworking loans on commercial properties to avoid major defaults that could further damage their balance sheets.

But commercial loans, along with the continued weakness in the residential markets, have pushed more than 100 banks into failure this year, the first time that has happened since the early 1990s. One hundred six banks have failed so far this year.

Capmark recently filed a $1.6 billion second-quarter loss. In its bankruptcy filing, the company listed $21 in liabilities and $20.1 billion in assets as of June 30.

The private equity group bought GMAC’s commercial real estate group in 2006 for $1.6 billion, and renamed it Capmark.