Commercial Real Estate Finance

Archive for the ‘Banking & Finance’ Category

Much has been said regarding the economic downturn and its hard-hitting subsequent effects on the commercial real estate industry.  When economic forces such as unemployment, consumer spending, and housing all converge negatively on us, most sectors of income producing real estate were hit hard.  But why did we not see this coming?  Or maybe the better question is: Why were we not better prepared for this? After all, real estate is cyclical and the good times could not have lasted forever. While real estate metrics like cap rates, cash on cash return and price per pound are all very simple, yet static tools, why did the more diverse and complex metrics like internal rate of return, specifically designed to take time and market fluctuations into account, seem to fail us? Read the rest of this entry »

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“The Euro is falling!” they scream on CNBC.  Who cares!? Not me.  It’s supposed to be falling.  They’ve got too much debt and slowing growth.  EUR denominated rates should come down and there is growing risk the European Monetary Union will break up.  By themselves, these facts (assertions?) do not have a great deal to do with the US.

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Answer: LIBOR

Wikipedia’s definition of LIBOR: “The London Interbank Offered Rate (or LIBOR, pronounced /ˈlaɪbɔr/) is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank market).”

That’s pretty good for one sentence.  I’ll just add that it is calculated using a survey of banks at 11AM in London.  How, people often ask, is a daily survey of banks in London connected to funding for garden apartments in Orlando? The connection is the global demand for dollars.

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Mark Cuban, an entrepreneur best known for his very hands-on ownership of the Dallas Mavericks, wrote a blog article recently that was essentially a rant on quant traders.  Cuban points out a lot of problems with the regulation, motivation, and morality of Wall Street.  I disagree with most of the solutions Cuban suggests to these problems because I think the solutions he proposes are contradictory to the root of the problem.  To Cuban’s credit though, at least he is trying to think of ways to solve the problems he’s identified.  I don’t think anyone really has a solution to regulate morality in the face of making huge profits.  So rather than propose my own solutions, I will just focus on a particular point Cuban made about systemic risk.  

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Okay.  Maybe they are not actually making fun of us.  But if it was in their nature, this would certainly be a good reason to.  With all of the economic turmoil facing the broader U.S. economy (think businesses closing, unemployment in double figures), the Amish seem to have resisted the burdens of the recession much like they resist the convenience of electricity. And frankly, if I were a bank headquartered in the middle of Pennsylvania, or any of the other various traditional Amish enclaves throughout the country, I would be paying attention.  A lot of attention. Read the rest of this entry »

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This week, the Senate began debating amendments to the much talked about, and much anticipated financial services reform bill (Senate OTC Derivatives Bill - S. 3217). Since the vote to proceed with debate passed last week, more than 100 amendments have been put forward by both parties (God Bless bureaucracy!).  There are a number of positive elements in the proposed legislation, but there are also elements that could substantially change, and maybe harm how companies manage their risks while putting their capital to work in the economy. The point of the bill is to address the problems revealed by the economic crisis…but they need not hurt the overall economy. With most legislation, specific groups are hard to define because definitions are loosely given.  This is an issue because if we cannot separate the little guys (small CPA firms, real estate owners etc.) from the big Wall Street firms like Goldman Sachs who are systemic risks to the broader economy, then not only will the little guys be subject to the same oversight, but the whole point of reform will have been missed.  So what do we think the Senate should be focused on? Read the rest of this entry »

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Who took my Coke from the fridge? You did it!

Wasn’t me.  Must have been him.

Couldn’t have been him because he wasn’t even here…and you have a Coke in your hand.

Well I may have a Coke in my hand, but I swear I didn’t do it. It had to be somebody else.

If one thing is certain, it is that nobody wants to take the blame for anything anymore, no matter how obvious they are to blame. Maybe we should collectively blame our generation’s parents for coddling us way more than in generations past. Hell, even that was an excuse.  It seems today individuals are so adept at assigning blame to anybody but themselves, they might need their own reality show.  No, not that kind of reality show.  I mean somebody needs to show them reality. Read the rest of this entry »

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Is Goldman CEO Lloyd Blankfein thinking hard, or about to drop another turd on everybody?

So the SEC has filed suit against Goldman Sachs.  Most people are saying hallelujah.  “Its about time they get what they deserve,” are the thoughts of most not in the know.  Yet, whether Goldman ends up being guilty of securities fraud or not, one thing remains a fact:  Its Goldman’s nature, nay, its business, to take advantage of people and situations.  Investors, little leaguers, the city of New York, or even its own employees.  Read their shit list… Read the rest of this entry »

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With the big news last week regarding the SEC formally charging investment bank Goldman Sachs with securities fraud, there is still some confusion on Main Street as to exactly all of this went down.  So I have simplified it for everybody.  How to make a boatload of money in four steps:

1. Encourage the creation of CDOs by becoming the sponsor and buying the hard to sell equity pieces Read the rest of this entry »

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The easy answer would be: All of them. According to an article in the Wall Street Journal, Goldman Sachs estimates 7% of banks’ commercial mortgages will eventually go bad, even though banks have so far only booked losses and taken reserves equivalent to 2.5% of such loans. Logic dictates that that 4.5% gap will manifest its ugly head sometime over the next several years.  But which banks will suffer? Trying to figure out the answer to that question may be a bit like playing “Pin the Tail on the Donkey.” Those with the heaviest exposure to commercial real estate would be the smartest, most logical answer, yet that may not be the case, and that may make things very confusing.  Here’s why… Read the rest of this entry »

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