Commercial Real Estate Finance

Archive for the ‘Banking & Finance’ Category

We have talked ad nauseum about how the CMBS market appears to be back.  Well, right alongside private investors,  their institutional counterparts are lining up behind them….hungry for commercial real estate. In a recent report by Real Estate Research Corp. institutional investors seem to favor real estate as an asset class over their competition, mainly stocks and bonds.

Read the rest of this entry »

John Maynard Keynes

One tool employed by non-rocket-scientists on their way to success on Wall Street is short-cuts; e.g. P/E, PEG…etc. Needless to say, actual rocket scientists also work on ‘The Street’. In recent years, they’ve focused on derivatives and their goal is frequently to distill complex matters into simple variables (short-cuts) the rest of us can understand. Things like delta, gamma and CDS spread, are all the end product of mathematicians and physicists who figured out Wall Street pays way better than academia. All of these metrics, to one degree or another, can end up as a vehicle for getting away from inexorable investing realities. Read the rest of this entry »

Protesting bank-financed mountaintop removal

“It’s one thing if your potential borrower is dumping cyanide in a river.  But if they’re dumping carbon dioxide into the air, which is not exactly illegal — what do you do?”

For a lender, this is an obvious ethical dilemma.  I think most lenders would agree that they wouldn’t want to finance a business that is doing something illegal (i.e. dumping cyanide in a river).  But there are plenty of lenders who finance profitable businesses that are 100% legal, albeit in some sort of moral “gray area” (i.e. dumping carbon dioxide into the air).  According to this article published on Monday by the New York Times (NYSE: NYT) from where I got the above quote, banks are starting to move away from making loans in that gray area.

Read the rest of this entry »

After plunging more than 40% from its peak in 2007, commercial real estate prices are beginning to stabilize bringing a return to Commercial Mortgage Backed Securities.  This revitalized interest in CMBS from yield hungry investors stems from the fact that lower property values limit lenders’ risks, and unlike during the boom years investors can expect banks to be lending to a higher caliber borrower.

While some banks remain unsure of jumping back into the CMBS game Wells Fargo & Co. (WFC: US), the top US commercial real estate lender, is not one of them.  According to an article in Bloomberg, Wells has hired more than 20 bankers and support staff to its team over the past three months to up its loan originations and bundle them into securities.  Of course Wells Fargo is just one example of banks revving up to take on new demand for CMBS, as we are seeing Citi Group, Deutsche Bank, Goldman Sachs, JP Morgan, Bank of America and a few new comers (Macquarie Group Ltd, Cantor Fitzgerald, etc.) stepping back up to the plate.

Making sure banks maintain their integrity when it comes to lending will be paramount for the long term success of the CMBS market, and I’m not sure they necessarily have the discipline.  At the moment it seems like banks are more cautious in their lending practices, but is this due diligence really happening to the degree to the degree we think it is, and what will happen when things bounce back and banks are tempted to once again throw caution to the wind?  If new protocol is actually in place I would like to see banks put their money where their mouth is.  The best way to do this would be to have CMBS originators obligated to keep a portion of the loans on their books, and have them not permitted to hedge that risk through a CDO transaction with a counter party.

KC Fed President Tom Hoenig

Yesterday, Kansas City Federal Reserve President Thomas Hoenig spoke at a field hearing of the House Subcommittee on Oversight and Investigations.  Read Bloomberg BusinessWeek’s report on his testimony here.  In answering lawmakers’ questions, Hoenig offered his take on the recovery of the U.S. economy.  The most salient bit of Hoenig’s testimony, and the bit that many reporters latched-on to, was his suggestion that community banks have been placed at a disadvantage in competing with the behemoth banks like Citibank (NYSE: C) and Bank of America (NYSE: BAC).  According to Hoenig, many community banks have thus far proven strong enough to stand up to the tests posed by a struggling economy.  If they are to make it through this recovery, however, they will need to be given an equal chance as large banks to succeed.

Read the rest of this entry »

Over the last year and a half, we’ve seen a number of our commercial banking friends lose their jobs or transfer to different banking institutions.  Loan officers who haven’t been forced out of their positions are miserable as there are few low-risk deals for them to do and a ton of legacy deals for which they need to find a solution.  It certainly has not been an easy 18 months for commercial real estate bankers.  As with anything else in life though, putting yourself in someone else’s shoes is often the best way to gain perspective on your station in life.  If you think your life as a loan officer in a depressed real estate market is bad, try having the same position in China.

Read the rest of this entry »

Any of you familiar with poker have heard the expression “betting on tilt.”  Essentially, it describes a player who has let their emotions get the best of them, and is overbetting a particular hand (or multiple hands) to try and make back the money they just lost on a big hand.  Rather than play the cards in from of them, they have let a bad beat cloud their judgment into making poor decisions.

And that brings us to Lehman (remember them?), the once upon a time Wall Street behemoth who crumbled into oblivion with bad commercial real estate bets.  Well, now they are doubling down on commercial real estate, betting that we have reached a bottom. Read the rest of this entry »

Buried somewhere deep in the borrowed notes of an undergrad class I didn’t attend, was written the name John Rawls. Frequent readers of this blog already know I haven’t the intellectual horse power to remember anything Rawls wrote, let alone actually understand it. In this instance, however, the notes briefly described a concept using a metaphor I could appreciate: a chocolate cake.

Put simply, if you want to ensure a cake is cut up evenly, make the person who does the cutting get the last piece. According to Rawls this all to do with “Original Position” or something philosophical. To me, it was a clever way to make sure I wasn’t fucked out of my share of cake. Read the rest of this entry »

Paul Vlocker - The Financial Reformist

With the financial reform bill signed into law just a couple of weeks ago, I am interested to see how the legislation will change the landscape for major commercial real estate investors.  The new law puts constraints on investment banks’ ability to be both advisors as well as principal investors.  Some of the biggest and strongest real estate investors through the peak of the last cycle were investment banks housing advisory and principal investment business lines under one roof.  As a result of financial reform, however, investment banks like Goldman (NYSE: GS), BoA (NYSE: BAC), and Morgan Stanley (NYSE: MS) will have to significantly downsize and perhaps even shed entirely their principal investment businesses, including real estate funds.  Will the selling and spinning-off of real estate funds be a potential buying opportunity for existing investment managers?

Read the rest of this entry »

Bloomberg published an article online yesterday about how States are racking up investment banking fees to refinance their debt.  These are the same large investment banks the State governments resent so much for making sub-prime loans to homeowners in their State, eventually triggering the downward spiral of their local economies.  Granted, the investment banking divisions of these banks never made sub-prime loans.  But these banks are so huge that the parent company under which the investment banking division falls, is ultimately the same company that was making home loans.  There’s something very distasteful about having to give your capital raising-business to an I-Bank that is owned by the same parent company as the mortgage-lender you distrust so much.  This is one major reason why you should rely on smaller, less complicated I-Banks to raise capital whenever possible.

Read the rest of this entry »