Commercial Real Estate Finance

Archive for June, 2009

First, Check this out.

Hallelujah!!  This is a good thing.

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A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned. The Ponzi scheme usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.

Charles Ponzi created it. Bernie Madoff aggrandized it. But there’s been a big white elephant in the room brewing over the last several decades (that will come to a head in the next few decades) that blows them all away.
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….about real assets.

1. What do Mark Twain and Johannes Gutenberg have in common?
2. What weighs more, a pound of gold or a pound of dollars?

More importantly, what do these questions have to do with real estate? Let’s see…

Mark Twain once wrote, “Buy land—they’re not making any more of it.” Let’s just assume, vertical development aside, that the amount of land is fixed. What, in your experience, is land denominated in? (i.e. what do you typically have to part with in exchange for said real property?) In 2006 you might have said, “a very large mortgage.” And, you might well have been right. Even still, what is that mortgage denominated in? Dollars.

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The Week of June 20-26

- Commercial Real Estate mortgage debt stood relatively still at $3.48 billion in the first quarter of 2009.

- Are HARP LTV’s going higher?

- CNC Investments defaulted and could lose 1,272 units in Austin, TX to foreclosure.

- A Georgia bank is auctioning off $100 million worth of troubled assets.
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Tom Coburn, a U.S. Senator from Oklahoma issued a report last week entitled 100 Stimulus Projects: A Second Opinion.  The report highlights 100 projects currently being funded by the American Recovery and Reinvestment act (a.k.a. stimulus bill) that are utterly wasteful.  The following is a list of the Top 10 projects that Coburn’s oversight team deemed to be the biggest wastes of taxpayers’ money.  I encourage you to check out the full report as the headlines reproduced here directly from Coburn’s report are not always indicative of how ridiculous these projects actually are. Read the rest of this entry »

Alex Schwartz
President
ASI Management

ASI Management

Q: As a company, tell me about the niche you have carved out for yourself and how you feel you are different from the competition. Why do you find this product type more appealing than alternative real estate asset classes?

A: My niche is depressed real estate with a value added component. There is normally something that needs to be done to the property in order for me to consider picking it up. I am attracted to this property type because I have the backing support to do the job. Because of this, I am able to pick up strategic assets which somebody else wouldn’t be able to. I can put all of the financing in. Most importantly, my backers and myself have the patience to wait out the recession for prices that make sense.
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…for being such scoundrels.

Last week, the New York Times reported on the indictment of R. Allen Stanford, the Texas billionaire accused of running a multi-billion dollar Ponzi scheme. Stanford has sold a huge number of CD’s around the world through a bank he set up in the Caribbean. Allegedly, when selling the CD’s he misrepresented where the purchaser’s cash would be invested to generate the return promised by the certificate. Instead of investing the proceeds in liquid, low-risk assets as he had promised the buyer, Stanford allegedly used the money to make highly speculative investments in real estate and other personal ventures.

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Inflation remains a threat as the dollar weakens. Will the U.S. be able to pay back our foreign debt obligations, or will we collectively make like property owners and default?

Last week, a report surfaced announcing the return of Mark Walsh (former head of Lehman Brothers global real estate group) to what’s left of Lehman Brothers to take over the crappy portfolio he once amassed during his tenure there. According to an article in the Wall Street Journal:

“Mr. Walsh and a team of former Lehman colleagues are setting up a new stand-alone business to manage the private-equity [real estate] portfolio. They stand to profit if the portfolio of distressed assets — for which they once paid top dollar — recovers only some of its value.”

On the surface, this is about as dumb as asking Dick Cheney the rules of firearm safety, Robert Hinckley Jr. how to assassinate a President, George W. Bush where to find Osama Bin Laden, or Bill Clinton to turn down the advances of unattractive women. Many a joke have been made thus far regarding the news, including outdated Brokeback Mountain jokes (i.e. “Lehman: Mark Walsh, I just can’t quit you” etc).
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Real Questions…

…. and Un-intended Consequences

Question 1:

If you are a buyer of real estate (and actually have capital), what sort of IRR are you looking for? 20%? 30%?

Question 2:

If you are an owner of real estate, why on earth would you sell into this market unless you absolutely had to?

In the last installment of Real Questions… we talked about how buyers of commercial real estate are waiting for the sellers of the world to blink.

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