Commercial Real Estate Finance

Archive for October, 2009

The Week of October 24-30

- Capmark finally filed for Chapter 11 bankruptcy protection, but will prevail in the end.

- How many more firms could be following Capmark into bankruptcy?

- Could PPIP be the solution to more bank transparency with regard to distressed assets?

- The Great Recession may be ending, but for CRE, its more like the Great Depression beginning.

- ING will be spinning off to get ahead.
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Transportation infrastructure is an essential element to commercial real estate development.  But who exactly builds the roads that lead to our shopping centers, offices, and homes?  This is a list of the 10 largest highway construction contractors in the U.S.  The list is reproduced from The Infrastructurist, a blog that follows infrastructure development and transportation issues.
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Bloomberg published an informative article yesterday highlighting the reasons why debt financing is so much more expensive for governments than private companies.  You would think that governments that NEVER default on debt issuances and have unlimited tax revenue could issue debt at a cheaper cost than private companies.  Municipal bonds, however, are often issued at rates anywhere from 100 to 150 bps higher than private companies.  What’s the reason for this?  Moreover, what lessons can an owner/investor of commercial real estate learn about debt financing from the municipal bond market?

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Landlords are scrambling to find tenants and buyers at a reasonable price. Buyers are scrambling to pool funds together to buy distressed assets. Over the last 6 months or so, we here at Llenrock have been approached by a variety of would be investors seeking equity to start, in some form or fashion, a distressed asset fund.  The simple logic is that with asset values plummeting, there will be opportunity.  There HAS to be opportunity.  Its the basic “sell high, buy low” mentailty of Wall Street. We hear pitches like, “I have an opportunity to buy a Class A building in a good submarket for only $100 per square foot!  It’s a steal!  It’s a no-brainer that its a good buy!”

Well, it may be a no-brainer…not because its a good buy, but because the people aren’t using their brains to properly assess the market. Read the rest of this entry »

I’ve started to write these blog entries on Sunday night. The natural pause ahead of the new week and helps broaden my perspective.

It is in this mindset that headlines regarding South Korea strike me as relevant. It turns out, South Korea’s economy expanded in the third quarter at the fastest pace in 7 years. Notice, if you will, the contrast to this article from Feb 2nd when things weren’t looking so hot. A quick poke around the internet shows what South Korea exports: electronic products (semiconductors, cellular phones and equipment, computers), automobiles… Basically, the South Koreans make stuff we don’t and therefore have to import.

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It’s no news flash that banks are failing left and right this year.  But what exactly transpires when a bank is seized by the FDIC and sold to a buyer?  After watching this clip, it seems that bank failures may actually undergo a pretty efficient M&A process that allows for survival of the fittest banks.  Of course, what they don’t show here is all of the agony a buyer has to go through before a purchase is actually executed.

This week we take a merry-globe-round on the real estate finance market

The week of October 17-23

- Why do we expect banks to play by the rules when the FDIC doesn’t?

- How much do bankers expect to recover from defaulted CRE loans?

- The TALF program is going to have massive requests next time around.

- Australia’s REIT yields are among the world’s best.

- CMBS spreads are narrowing; Mortgage delinquencies are climbing.
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The Hotel Industry has battered developers, and nobody worse than your favorite hospitality magnate…The Monopoly Man.

Steven M. Davidoff, a professor at UConn’s Law School wrote a very interesting blog piece earlier this month entitled “The Inevitability of Finance.” Davidoff gives a historical perspective on the necessity of financial innovation and places it in context with the vast amounts of change were currently seeing in financial markets.  For argument’s sake, I immediately began to question the “inevitability” that Davidoff writes about.  Moreover, I wondered if that inevitability could be applied to my work as a commercial real estate investment banker.  As much as I would like to think my services are absolutely necessary, my philosophical side has a hard time accepting that.

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