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Archive for the ‘Banking & Finance’ Category

A couple of months after I quit my job at JPM to join Llenrock, I had dinner with my former trading colleagues.  True to form, all we really talked about was trading.  And that, of course, led to talk about specific trades.  It’s the trading analogue to fishing stories about ‘the one that got away’.

In my book, at the time of my departure, was a losing trade.  i.e. I had already lost money on a trade, but had not yet cut my losses in the belief that the market would move my way.  In response to some teasing about the ‘bad trade’ I pointed out that, in fact, the traded ended up moving my way after I left.  I was basically saying, “Hey, I’m not such a dummy after-all.  While I lost money initially, the trade turned and ended up actually making money.”

The response to me: “It’s a mark to market business.” Read the rest of this entry »

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Want to refinance your home to take care of historically low interest rates?  Hold your horses. Read the rest of this entry »

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Editor’s Note: Several of us at Llenrock Group have been teaching a course on the capital markets for commercial real estate broker’s continuing education requirements. As the last installment in a three week blog series, this week Questionable Brokers will  posit questions regarding Deal Structure. Click here for Part 1 (Real Estate Metrics). And click here for part 2 (Types of Capital) Enjoy!

Q: Why haven’t there been as many distressed properties coming to the market as was expected / predicted?

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It’s been four full business days since the Fed announced a 25bps hike in the discount rate.  After a knee-jerk down, equities seemed to have basically yawned, until yesterday.  Interestingly, 10 year treasury yields rose after the announcement, held for a day, and they came way down today.

I think Bernanke was trying to get long term rates lower, and he knows it could mean a sustained bear market for equities.   He also knows he doesn’t really have a choice.  What it means for commercial real estate, however, remains a tough question; but, we’ll get to that later.

To start, I’m going to focus on why the fed chose to make a ’surprise’ inter-meeting announcement.  The answer is best revealed in a time line: Read the rest of this entry »

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I have been confused as to why the Fed raised the discount rate on Friday.  Typically, increases in short term interest rates by the Fed follow increases in the expectation for short term inflation.  What is unusual about the current situation is that current and expected inflation is low. Read the rest of this entry »

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Editor’s Note: As the second installment in a three week blog series, Questionable Brokers will  posit questions regarding Types of Capital. Last week, the first part of the series examined questions regarding Real Estate Metrics. Next Week week we will wrap up the series with questions Deal Structure. These are real questions from real real estate brokers. Enjoy!

Q: What is the difference between mezzanine debt and preferred equity?

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After the New York close, the FOMC announced a hike in the Discount Rate (0.50% t 0.75%).  Please note: this is NOT the Overnight Rate (manipulated via Open Market Operations).  There is a significant difference and an inter-meeting hike, at this point, of the Overnight Rate would have been cause for a bit of panic.  The Overnight Rate effects all banks, right away.  The Discount Rate only effects banks that borrow at the Discount Window; i.e. tonight’s news immediately and directly effects only a tiny fraction of the financial world.

This does not mean, however, that tonight’s hike is without both real significance and real impact.  Don’t let the talking heads/cheerleaders on CNBC fool you.   This is a big deal and you should pay attention.

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So, for months I’ve been subjecting you to my musings regarding the intersection between commercial real estate and macro economics.  Of course, right when I stop droning on for a week or two, a “crisis” in Greece ostensibly causes a 9% “correction” in stocks.

Well, I’m back, and I’m here to help…. well, at least to make some smart-ass comments.

Let’s begin.

The “crisis” really isn’t about Greece, it’s about the whole Eurozone, and it’s not over.   When they tell you the situation in Greece has been settled, just ask them if the “subprime crisis” is still well contained.  While it’s tempting to think I’m being overly dramatic, people far smarter than I will tell you the Euro is doomed to failure.  Tomorrow?  The next day?  Perhaps not, but well within your business career.

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Editor’s Note: Several of us at Llenrock Group have been teaching a course on the capital markets for commercial real estate broker’s continuing education requirements for the states of Pennsylvania and Delaware. As part of a three week blog series, Questionable Brokers will  posit questions we have received in such classes from various brokers from the Tri-State area regarding the capital markets. We felt it would be useful for other brokers to see the kinds of questions their peers are asking, and a useful tool to our other readers who may have some of the same basic questions on the capital markets. We will divulge names and companies for a fee. Just Kidding. On second thought…it depends on how much you offer. The first part of the series will examine questions regarding Real Estate Metrics.  Next week, we will feature questions regarding Types of Capital, and the following week, we will examine questions regarding Deal Structure. Enjoy!

Q: Does the IRR metric still carry the same weight as a measurement for property valuation given the state the market today?

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Maybe the Mortgage Bankers Association (MBA) needs to get an M.B.A. in real estate. As a recent Wall Street Journal article detailed, the company charged with helping borrowers source financing, drank their own financing Kool-Aid and succumbed to a tanking economy and real estate market.  Its one thing for an unknowing and unsuspecting homeowner to get a variable rate mortgage.  Its another for an organization of professionals taught to understand the pitfalls of such financing in an economy with unsustainable low interest rates.  The MBA sold their Washington D.C. headquarters, which they bough in 2007 for $79.1 million,  to commercial real estate data provider CoStar Group for just $43 million.

Rather than writing a blog post, I figured I would simply make the following comments, and let you, the reader respond with your own: Read the rest of this entry »

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